This paper examines if equity funds’ investment in environment, social, and governance (ESG) affects their capital flows and performance. Utilizing a novel fund-level ESG metric, we find that fund-portfolio-level ESG negatively attracts money inflows, this effect is more pronounced for unsophisticated investors. Also, stocks with high ESG scores tend to underperform, while funds with more ESG investment do not generate inferior performance. It suggests that fund managers process active skills to cover the cost of ESG investment and may find the optimal level of it in their portfolios. Further tests show that the skills of fund managers with more ESG investment may be attributed to their experienced ESG information in stock investment. Our results also provide new insights into the mechanisms behind investing in socially responsible funds.

This study presents a method to analyse social media interactions and their relationship with investor decisions and stock market movements. It explores three questions: (1) the best method for classifying stock-related social media posts, (2) the influence of posts on stock returns and trading volumes, and (3) the impact of posts by opinion leaders. WallstreetBets board in Reddit social media and the GameStop stock provide an ideal laboratory for answering these questions. We analysed 135,000 posts, 5.6 million comments, and 90,000 users from November 2020 to June 2021. Using natural language processing and deep learning, posts and comments were classified by user intention (buy, sell, hold). We found that a BERT-based classifier achieved the highest performance with an F1 score of 80.2%. We then analysed the relationship between social media activity and stock market data, finding that posts are related to trading volumes but not stock returns. However, considering the popularity of posts, there is a significant relationship between social media opinions and stock returns and trading volumes. The study highlights the importance of "influencers": posts from a few influential users significantly impact stock returns and volumes. This research underscores the importance of social media dynamics in financial market behaviour.

Does early-life disaster experience influence the way investors price financial assets? Using household registration information of bankers originating large corporate loans, we find unique evidence that bankers who had experienced higher number of major disaster events charge higher loan spreads than those experienced less or not. This effect holds regardless of bankers’ risk preference in the selection of borrowers. It becomes stronger for borrowing firms with lower profitability and leverage, and those with higher pre-existing lending relationship with individual bankers, and even those with higher climate risk exposure. Our results are not driven by bank, banker characteristics and borrower fundamentals, but suggest that investor conservatism, driven by early disaster experience, shapes assets price.

Using a large dataset of US firms over the period 2007–2022, I find that institutional ownership is associated with fewer biodiversity risk incidents, suggesting a significant role of institutional investors in combating biodiversity loss. The finding is robust to various fixed effects, extends to alternative measures of biodiversity risks, and persists even after adjusting for past incidents. Using plausibly exogenous variation in investors’ monitoring ability indicates causality. The effect is strongest for long-term and domestic institutional investors. Foreign institutions are generally associated with an increased risk of biodiversity, but this relationship is less pronounced when they originate from countries with a strong environmental and biodiversity awareness. Finally, biodiversity risk incidents are positively associated with the implied cost of equity capital, consistent with the notion that investors demand compensation for biodiversity risk exposure.