Episode 273: Professor Samuel Hartzmark: Asset Pricing, Behavioural Finance, and Sustainability Rankings
The Rational Reminder Podcast
Shifting the Cost of Capital for Sustainable Investing
This chapter discusses the concept of shifting the cost of capital for firms to incentivize sustainable investments. It explores the impact on green and brown firms, highlighting the near-zero impact elasticity of green firms and the negative impact elasticity of brown firms. The chapter also examines the effectiveness of divestment and the considerations for investors when choosing sustainable products.
Today’s episode is an exhilarating journey into the captivating realms of finance and human behaviour with Professor Samuel Hartzmark, who takes centre stage to explore the complex intersection of asset pricing and behavioural finance. Professor Hartzmark’s career and academic journey are nothing short of inspiring. With a double major in mathematics and economics, a prestigious MBA from the University of Chicago Booth School of Business, and a Ph.D. from the University of Southern California's Marshall School of Business, he has paved a remarkable path through the world of academia. Our conversation takes a deep dive into his groundbreaking research, where he dissects complex financial topics with astonishing clarity. We delve into some of his most-cited papers, including those on dividends and sustainable investing, which consistently reveal counterintuitive conclusions that challenge conventional wisdom. We unpack price-only index returns, dividend juicing, price-only data, the value of sustainability rankings, and the power of capital to make the world a better place. And don't miss our exploration of multi-factor asset pricing, where Samuel’s unique perspective sheds new light on these models in the context of human behaviour. This episode promises an enlightening and engaging conversation that investors and finance enthusiasts alike won't want to miss!
Key Points From This Episode:
(0:03:48) Morningstar's sustainability rating system and its impact on the flow of mutual funds.
(0:07:35) Choosing sustainability ratings over other metrics and how they motivate investors.
(0:16:24) What drives the behaviour of mutual fund investors toward green firms.
(0:18:17) Unpacking the concept of sustainable investing and how impact elasticity is relevant.
(0:23:15) Insights into the impact elasticity differences between brown and green firms.
(0:26:40) The divestment of brown firms and ESG integration.
(0:28:58) Unlocking the power of investor capital to shift toward a green economy.
(0:32:57) Price returns versus dividend returns from a behavioural finance perspective.
(0:39:05) Whether dividends are a safe hedge in a volatile market.
(0:44:26) Reasons behind the demand for dividends and how it impacts expected returns.
(0:47:55) Ways mutual funds exploit the preferences of dividend investors.
(0:50:52) Dividend juicing and the overall cost to investors.
(0:53:21) Advice and recommendations for dividend-loving investors.
(0:54:53) Diving into data preferences: unveiling the prevalence of price-only index usage.
(0:58:09) How price-only data reliance affects media coverage of the market and fund flows.
(1:02:17) Investor expectations regarding price-only index funds and how to avoid the pitfalls.
(1:05:23) Varied asset returns and understanding people's asset allocation motivations.
(1:10:54) What survey results tell us about asset pricing.
(1:13:12) Examining implications of portfolio tilting towards priced risk.
(1:18:56) Professor Hartzmark’s version of success and happiness.
Participate in our Community Discussion about this Episode:
Links From Today’s Episode:
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/
Shop Merch — https://shop.rationalreminder.ca/
Join the Community — https://community.rationalreminder.ca/
Follow us on X — https://twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on X — https://twitter.com/benjaminwfelix
Cameron on X — https://twitter.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on X - https://twitter.com/MarkMcGrathCFP
Mark McGrath on LinkedIn - https://www.linkedin.com/in/markmcgrathcfp/
Professor Samuel Hartzmark — https://www.samhartzmark.com/
Professor Samuel Hartzmark Email — samuel.hartzmark@bc.edu
Professor Samuel Hartzmark on X — https://twitter.com/SamHartzmark
Professor Samuel Hartzmark on LinkedIn — https://www.linkedin.com/in/sam-hartzmark-b21bb127/
Professor Samuel Hartzmark on Google Scholar — https://scholar.google.com/citations
Boston College — https://www.bc.edu/
Morningstar — https://www.morningstar.com/
Sustainalytics — https://www.sustainalytics.com/
Episode 192: Professor Alex Edmans — https://rationalreminder.ca/podcast/192
‘Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms’ — https://dx.doi.org/10.2139/ssrn.4359282
‘Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows’ — https://dx.doi.org/10.2139/ssrn.3016092
Travelers Insurance — https://www.travelers.com/
‘Reconsidering Returns’ — https://dx.doi.org/10.2139/ssrn.3039507
‘A New Test Of Risk Factor Relevance’ — https://dx.doi.org/10.2139/ssrn.3487624
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