Abstract
This paper develops and tests an equilibrium model of active fund management with ESG considerations. Heterogeneous sustainability preferences lead fund managers to intensify information acquisition on assets across the ESG spectrum, broadening the scope of active management. This information channel enhances price informativeness, lowers discount rates, and increases portfolio deviation from benchmarks. The model predicts a negative and concave ESG-expected return relation, stronger for green assets and weaker for brown assets. Using data on U.S. mutual funds and stocks from 2007–2021, we find supporting evidence based on price informativeness and the implied cost of equity capital.
| Original language | English |
|---|---|
| Pages (from-to) | N/A-N/A |
| Journal | JOURNAL OF BANKING & FINANCE |
| Volume | 182 |
| Issue number | January 2026 |
| DOIs | |
| Publication status | Published - 2026 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 12 Responsible Consumption and Production
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Asset pricing
- ESG
- Information acquisition
- Mutual funds
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