In this study, we investigate whether investors are willing to trade off wealth for societal benefits. We take advantage of unique institutional features of the municipal securities market to provide insight into this question. Since 2013, states and other governmental entities have issued over $23 billion of green bonds to fund eco-friendly projects. Comparing green securities to nearly identical securities issued for non-green purposes by the same issuers on the same day, we observe economically identical pricing for green and non-green issues. In contrast to a number of recent theoretical and experimental studies, we find that in real market settings investors appear entirely unwilling to forgo wealth to invest in environmentally sustainable projects. When risk and payoffs are held constant and are known to investors ex-ante, investors view green and non-green securities by the same issuer as almost exact substitutes. Thus, the greenium is essentially zero.

An important debate exists around the extent to which retail investors make sustainable investments and, if they do, why. We contribute to this debate by investigating the aggregate trading patterns of retail investors around a comprehensive sample of key environmental, social, and governance (ESG) news events for U.S. firms. We show that ESG news events appear to be an important factor in retail investors’ portfolio allocation decisions. Yet, inconsistent with arguments about retail investors’ nonpecuniary preferences, our evidence shows that retail investors mainly trade on this information when they deem it financially material to a company’s stock performance. We also find their net trading demand predicts abnormal returns in the subsample of financially material events, consistent with retail traders benefiting from incorporating ESG-related information into their decision-making when it influences firm value. Overall we conclude that the average U.S. retail investor cares about firms’ ESG activities but primarily to the extent these activities matter for company financial performance.

Using comprehensive data on U.S. corporate bond trades since 2002, we find evidence that retail bond investors overrely on untimely credit ratings to their financial detriment. Specifically, they appear to select bonds by first screening on a credit rating and then sorting by yield, buying the highest-yielding bonds within each rating level. Because yields lead credit rating changes, selecting on yield-within-rating means that retail investors systematically trade in the opposite direction of changing fundamentals, buy in advance of credit downgrades and defaults, and materially underperform a diversified portfolio. Our study provides new evidence of ill-informed retail trading in a market that is thought to be relatively sophisticated, corroborates regulators’ concerns about investor overreliance on credit ratings, and contributes to the academic literature on the roles and consequences of credit ratings in debt markets.

We study the informational value of trading networks in over-the-counter (OTC) markets. Using detailed transaction-level data from the corporate bond market, we show that investors with larger dealer networks make superior trading decisions before changes in credit fundamentals, resulting in better risk-adjusted performance. We trace these investors’ superior trading decisions to trading connections where dealers are most likely to have access to novel credit-relevant information, supporting the interpretation that these investors obtain private information through their trading networks. Collectively, our evidence highlights the importance of trading relationships for investors’ private information acquisition.

We study how global changes in information acquisition costs through disclosure technologies affect price informativeness. To explore this issue, we examine worldwide adoptions of centralized electronic disclosure systems, which significantly reduce the cost of and broaden access to financial disclosures. Consistent with theory, we show a significant reduction in private information acquisition around earnings announcements as a result of these adoptions. These effects are most pronounced in countries with the most substantial reductions in information acquisition costs and where we find more significant decreases in informed trade. Overall, we highlight an important, unintended cost of broadening access to financial disclosures through technology adoptions.

ABSTRACT We document significant increases in bond market liquidity around earnings announcements. These increases are attributed to decreased search and bargaining costs, which arise from the over‐the‐counter (OTC) nature of bond markets and outweigh increases in information asymmetry during these periods. Our evidence traces reductions in search and bargaining costs to two sources around earnings announcements: (1) improved access to dealers and (2) increased participation from institutional investors, who can more easily transact with multiple dealers. Overall, our findings highlight a novel channel through which firm‐specific information affects asset prices.

ABSTRACT This paper provides evidence that disclosing corporate bond investors' transaction costs (markups) affects the size of the markups. Until recently, markups were embedded in the reported transaction price and not explicitly disclosed. Without explicit disclosure, investors can estimate their markups using executed transaction prices. However, estimating markups imposes information processing costs on investors, potentially creating information asymmetry between unsophisticated investors and bond‐market professionals. We explore changes in markups after bond‐market professionals were required to explicitly disclose the markup on certain retail trade confirmations. We find that markups decline for trades that are subject to the disclosure requirement relative to those that are not. The findings are pronounced when constraints on investors' information processing capacity limit their ability to be informed about their markups without explicit disclosure.

ABSTRACT This study examines how an increase in tick size affects algorithmic trading (AT), fundamental information acquisition (FIA), and the price discovery process around earnings announcements (EAs). Leveraging the SEC's randomized Tick Size Pilot experiment, we show that a tick size increase results in a decline in AT and a sharp drop in absolute cumulative abnormal returns and volume around EAs. More importantly, we find increased FIA in the preannouncement period. Specifically, we show: (1) treatment firms' pre-announcement returns better anticipate next quarter's standardized unexpected earnings; (2) these firms experience an increase in EDGAR web traffic prior to EAs; and (3) they exhibit a drop in price synchronicity with index returns. Taken together, our evidence suggests that while an increase in tick size reduces AT and abnormal market reaction after EAs, it also increases FIA activities prior to EAs. JEL Classifications: M40; M41; G12; G14.

The lack of diversity across gender and race of corporate boards has been one of the most significant issues in corporate board governance in recent years. Given the critical role that shareholders have in approving director appointments, we analyze voting patterns in director elections to investigate whether and how shareholders value board diversity. Using a broad sample of director elections from 2008 through 2018, we find evidence that shareholders provide greater voting support for diversity on boards, particularly gender diversity. Our findings also indicate greater additional support for diverse boards rather than for individual candidates. However, the magnitude of incremental voting support for diversity is small, and we find little evidence that the additional support is sufficient to affect voting outcomes. These findings persist over time and across key institutional shareholders who have been some of the most outspoken proponents of board diversity (i.e., SRI funds), questioning shareholders’ commitment to promoting board diversity.

This paper examines which municipal disclosures provide informational value to investors. Using the entire universe of post-issuance financial and event disclosures from 2009 to 2022, we find that most municipal bonds do not trade in the weeks following a disclosure. However, some disclosures do provide enough new information to increase trading. Investors trade more on credit-relevant disclosures, such as adverse credit event disclosures, and less on required annual financial statements. Trading after disclosures also increases more when a bond is large or risky. Moreover, we find that credit rating agencies respond to disclosures, lending support to the idea that some disclosures have informational value. In further analyses, we find that trading before the disclosure, lack of timeliness, illiquidity, and information processing constraints contribute to the limited trading on the average disclosure. The findings suggest that reconsidering a one-size-fits-all approach to regulating post-issuance municipal disclosures may be worthwhile.