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New research on investing from Harvard Business School faculty on issues including institutional investing, foreign direct investment, and investment activism.
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How Companies Can Increase Market Rewards for Sustainability Efforts

by Rachel Layne

There is a connection between public sentiment about a company and how the market rewards its corporate social performance, according to George Serafeim. Is your company undervalued? Open for comment; Comment(s) posted.

Do Fire Sales Create Externalities?

by Sergey Chernenko and Adi Sunderam

This paper contributes to our understanding of the role of large institutional investors in securities markets, providing evidence that the structure of the mutual fund industry increases the risks of costly "fire sales."

Public Sentiment and the Price of Corporate Sustainability

by George Serafeim

Public opinions from industry experts are important in the economy but it has not been clear how they affect the valuation of and returns to corporate activities. Using big data and machine learning, this paper analyzes how public sentiment influences the market pricing of firms’ sustainability activities and thereby the future stock returns of portfolios that integrate environmental, social, and governance data.

IQ from IP: Simplifying Search in Portfolio Choice

by Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou, and Christopher J. Malloy

Mutual fund managers solve their complex “search problem” for superior investable returns by tracking—and trading—on very particular sets of firms and insiders. These sets are chosen strategically and remain very persistent over time, as does the outperformance these insiders’ trades afford to the given fund managers.

Investing Outside the Box: Evidence from Alternative Vehicles in Private Capital

by Josh Lerner, Jason Mao, Antoinette Schoar, and Nan R. Zhang

Private equity vehicles that differ from the traditional structure have become a major portion of investors’ portfolios, especially over the past decade. This study identifies differences in performance across limited and general partners participating in such vehicles, as well as across the two broad classes of alternative vehicles.

Is 'Gut Feel' a Good Reason to Invest in a Startup?

by Michael Blanding

Most investments in startups should never be made, at least when using by-the-numbers reasoning. But funded they are. Laura Huang believes investors use gut instinct to manage that risk. Open for comment; Comment(s) posted.

Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach

by Akash Chattopadhyay, Matthew R. Lyle, and Charles C.Y. Wang

Over the last 20 years, shortcomings of classical asset-pricing models have motivated research in developing alternative methods for measuring ex ante expected stock returns. This study evaluates the main paradigms for deriving firm-level expected return proxies (ERPs) and proposes a new framework for estimating them.

Developing Novel Drugs

by Joshua Krieger, Danielle Li, and Dimitris Papanikolaou

This paper contributes to our understanding of how financing constraints affect the direction of innovation in drug development. The authors develop a new measure of drug novelty based on molecular characteristics, and explore the tradeoffs involved in decisions to develop more novel therapies. Open for comment; Comment(s) posted.

Mutual Funds as Venture Capitalists? Evidence from Unicorns

by Sergey Chernenko, Josh Lerner, and Yao Zeng

Larger mutual funds and those having more stable funding are more likely to invest in privately held startups known as unicorns. Mutual funds are less involved in corporate governance, especially boards of directors, but have more protections when it comes to liquidating their stakes.

Do Bitcoin and Digital Currency Have a Future?

by James L. Heskett

SUMMING UP Bitcoin has shown to be a powerful digital currency, but the real story of the future is Blockchain, say James Heskett's readers. Open for comment; Comment(s) posted.

State Street’s SHE: Investing in Women Leaders

Re: Vikram S. Gandhi

As investors increasingly demand investment opportunities that match their social beliefs, financial services firms are busy designing new products. In this podcast, Vikram Gandhi discusses the expanding influence of impact investing and how State Street Global Advisers is responding. Open for comment; Comment(s) posted.

Should Industry Competitors Cooperate More to Solve World Problems?

by Sean Silverthorne

George Serafeim has a theory that if industry competitors collaborated more, big world problems could start to be addressed. Is that even possible in a market economy? Open for comment; Comment(s) posted.

Governance Through Shame and Aspiration: Index Creation and Corporate Behavior in Japan

by Akash Chattopadhyay, Matthew D. Shaffer, and Charles C.Y. Wang

By exploiting the unique features of Japan’s JPX-Nikkei 400 index, this paper examines how membership in a stock index serves as a source of prestige that can motivate managers and influence corporate governance norms. Findings are important for understanding non-pecuniary mechanisms to induce meaningful changes in corporate behavior.

Catering Through Disclosure: Evidence from Shanghai-Hong Kong Connect

by Aaron S. Yoon

The researcher studies firms’ use of disclosure to build investor confidence when they operate in a market where the institutions that support the supply of credible information are weak.

Why Global Investments Are Still a Good Bet

by Michael Blanding

International markets often move together, so does a global investment portfolio even make sense anymore? Luis Viceira still sees plenty of advantages in looking beyond home markets. Open for comment; Comment(s) posted.

Is China About to Overtake the US for World Trade Leadership?

by James Heskett

SUMMING UP. It's better for the United States if China is an economic ally rather than a competitor for world trade leadership, James Heskett's readers conclude. Open for comment; Comment(s) posted.

The Persistent Effect of Initial Success: Evidence from Venture Capital

by Ramana Nanda, Sampsa Samila, and Olav Sorenson

To understand better what channels might account for persistence in the fund-level performance of private equity firms, the authors examine the individual investments underlying fund-level returns.

Vanguard, Trian And The Problem With 'Passive' Index Funds

by Michael Blanding

Index funds are the major shareholders in many large- and medium-sized public companies, but their passive investment nature offers few checks on those companies’ executives, says Luis Viceira. Open for comment; Comment(s) posted.

The Stock Market and Bank Risk-Taking

by Antonio Falato and David Scharfstein

It is clear that risk-taking by financial institutions is one of the main causes of financial crises and severe recessions. Yet we know relatively little about what gives rise to such risk-taking in the first place. This paper presents evidence that a focus on short-term stock prices induces publicly-traded banks to increase risk relative to privately-held banks. The findings provide support for the view that compensation schemes should require management to hold stock for longer periods to mitigate their incentives to pump up short-term earnings and the short-term stock price.

Black Swans and Big Trends Can Ruin Anyone's Internet Prediction

by Thomas R. Eisenmann

Coming off the dot-com bust, Thomas R. Eisenmann was confident enough in his internet vision that he wrote a book about what would happen next. For the most part, he was wrong. He offers lessons learned for navigating the boom-bust cycle. Open for comment; Comment(s) posted.