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Household Finance - 3
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| Presentations | ||
The Surprising Performance of Green Retail Investors: A New (Behavioral) Channel 1National University of Singapore, Business School; 2Singapore Management University, Lee Kong Chian School of Business; 3Indian Institute of Management Bangalore, Department of Decision Sciences and Centre of Public Policy; 4The University of Hong Kong, Faculty of Business and Economics Contrary to the prevailing wisdom that green investors willingly accept lower returns for sustainable investment, our analysis of account-level data from a major Indian bank indicates the opposite. We find that investors with a higher proportion of green stocks in their portfolios achieve superior risk-adjusted portfolio returns. To explain this surprising observation, we hypothesize—and empirically verify—that green investments may help investors mitigate detrimental behavioral bias, such as the disposition effect and under-diversification. Alternative mechanisms related to stock selection ability, aggregate demand shocks, and risk mitigation fail to explain green performance. Instead, tests utilizing abnormal temperatures as exogenous shocks support a causal interpretation of our findings. These results suggest a novel behavioral channel for fully understanding the implications of green preferences.
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