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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 languageEnglish
Pages (from-to)N/A-N/A
JournalJOURNAL OF BANKING & FINANCE
Volume182
Issue numberJanuary 2026
DOIs
Publication statusPublished - 2026

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

  1. SDG 12 - Responsible Consumption and Production
    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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