Tag: asset pricing

Animal spirits and environmental, social and governance asset prices: does market sentiment drive stock returns?

Gerardo Martinez

In 1936, John Maynard Keynes coined the famous term ‘Animal Spirits’ to illustrate how people take decisions based on urges, overlooking the benefits and drawbacks of their actions. To what extent are prices of Environmental, Social and Governance (ESG) assets driven by the sentiment of market participants, as opposed to economic fundamentals? To answer this question, I make use of Natural Language Processing (NLP) tools and an original corpus of tweets to capture market sentiment around climate change. Estimating a factor model, I find that sentiment is associated with immediate returns of climate change related stock indices. These results are stronger for days with the most extreme returns. Market sentiment might be particularly useful in explaining large movements in ESG asset prices.

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Home is where your cash flows are? UK-focused equities and the international exposure of the FTSE All-Share

Lu Liu.

Equity prices reflect the market value of public companies, making them an important indicator of the economy.  In practice, stocks by firms listed on the local stock exchange serve as the ‘domestic’ equity benchmark but this might be misleading as an indicator of the national economy:  stock markets track the performance of individual firms, including their international business.  This makes it particularly challenging to extract a signal for the UK economy from UK equity prices, as the universe of UK-listed firms tends to be very global – for instance, around 2/3 of sales represented on the FTSE All-Share are generated abroad.  So for a better read of the UK economy, I’ll look at a subset of more UK-focused stocks and other more domestically-focused UK equity indices.

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