POUGET Sebastien

The interactions between climate change and financial institutions are still insufficiently explained. Through economic research and a managerial analysis of the practices of a French institutional investor, this thesis analyzes the twofold problem faced by these organizations: measuring their extra-financial impact while managing the new financial risks induced by climate change. We first show how the organization's actors rely on a global reference framework - the United Nations' Sustainable Development Goals - to meet the challenges of measuring the impact of responsible investment. We then show that a brutal energy transition scenario significantly increases the financial risks of companies in certain sectors and that this risk is, to date, only partially taken into account by the financial markets. The analysis of practices at the micro level shows that this lack of consideration can be explained by the impact of existing routines on the construction and use of new climate risk management tools and by risk perceptions that are too far removed from those of climate scientists.

This paper studies the role of preopening periods in liquidity formation and welfare in financial markets. Because no transaction occurs during these preopening periods, their economic significance could be questioned. We model a market where costly participation and asymmetric information prevent latent liquidity from being expressed. At equilibrium, risk-averse insiders use preopening periods to better coordinate supply and demand of liquidity by communicating liquidity needs, thus improving welfare. Partial or full communication of private signals by the insider with the asset at preopening periods does not always enhance liquidity formation, but improves welfare through reducing adverse selection risk faced by the outsider, and increasing the likelihood of her entry. Our findings have implications for portfolio management and the design of financial markets.

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Are institutional investors engaging with the issue of corporate externalities, such as greenhouse gas emissions? We study voting in the shareholder meetings of two iconic investors: BlackRock, a major international portfolio manager, and the Norwegian Fund, a responsible sovereign wealth fund. Our data covers 2014 and contains 35,382 resolutions voted by both institutions at 2,796 companies around the world. Both so-called universal investors oppose management more often on issues related to externalities than on financial issues. The Norwegian fund is more active on resolutions related to environmental and social externalities than on governance issues. The difference in behavior between the two investors is even greater if we focus on resolutions related to climate change. In the end, the logic of delegated philanthropy seems to be a stronger motivation than that of the universal investor to combat externalities.

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We study the behavior of individual investors in the financial markets by combining MiFID questionnaire responses and bank data from over 98,000 customers of a major European bank. First, we study participation in equity markets. We show that customers' risk tolerance and self-assessed loss attitudes are strong predictors of equity investment while controlling for classical determinants. Then, within the framework of mental accounting, we create a typology of mental goals and show that clients' financial decisions are consistent with their mental goals. Finally, we analyze the behavior of investors who directly hold at least one foreign stock. We show that they hold more diversified stock portfolios than domestic investors. These sophisticated investors are more risk-tolerant, less loss-sensitive and more financially literate but are subject to home bias.

This thesis is organized in three articles. The first one is dedicated to the case of the Toulouse mills whose data allow us to test some points of the asset pricing theory. More precisely, we propose a measure of local consumption and perform an analysis based on relative entropy to extract the stochastic discount factor of this economy. We find that the latter is related to consumption and that a simple Lucas-like model is not rejected for low levels of risk aversion. In the second paper, we describe in a purely theoretical way the relationship between the volume of trade and the composition of the market through a model where the preferences of an agent depend on his environment and where a liquidity shock can occur collectively for all members of the same group. We then introduce the concept of desirable channel as a necessary condition for the realization of an exchange and link the network topology to the expected volume of exchanges. The third paper focuses on the role of social status in market dynamics. We propose a model where two types of goods are available, a positional good and a non-positional good. By distinguishing in the economy between those who have status and those who do not, we justify how exchanges take place over time with respect to this social distinction. The predictions of the model are then tested on historical data from the Toulouse mills.

This research work strives to better understand the effects of one or more exogenous shocks in a financial market. More precisely, we attempt to study the impact of an informational shock on asset price behavior, speculative bubbles, price volatility, trading volume and analysts' forecasts. Thus, to do this, we break down the problem into three articles. The first paper presents an empirical analysis that tests the effects of an expected exogenous shock - the Brexit announcement - on the short-run and long-run performance of British and European listed firms. Our results show that the Brexit announcement negatively impacts the long-run performance of British and European firms since they do most of their business with the British area. In the second test,we test the effects of an expected and unexpected exogenous shock to fundamental value in an experimental market. Our results show that shocks have a negative effect on price deviation from fundamental value and a positive effect on belief heterogeneity regardless of the type of shock, expected or unexpected, and regardless of its direction, up or down. The third paper focuses on the effects of multiple unexpected shocks in an experimental market. Our main results are that multiple downward shocks reduce trading volume and price volatility while multiple upward shocks have no effect on trading volume and increase price volatility. Finally, we observe, only in markets without shocks, a positive relationship between trading volume and belief heterogeneity.

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This paper studies the impact of the confirmatory bias on financial markets. We propose a model in which some traders may ignore new evidence inconsistent with their favorite hypothesis regarding the state of the world. The confirmatory bias provides a unified rationale for several existing stylized facts, including excess volatility, excess volume, and momentum. It also delivers novel predictions for which we find empirical support using data on analysts’ earnings forecasts: traders update beliefs depending on the sign of past signals and previous beliefs, and, at the stock level, differences of opinion are larger when past signals have different signs.

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This thesis aims to analyze whether environmental, social and governance (ESG) performance is integrated by corporate and sovereign debt markets. The first chapter focuses on ESG information published with negative content and its negative impact on the cost of debt. Specifically, in the industrial and utility sectors, negative social and governance events increase the cost of debt. Also, a good general level of ESG performance acts as an insurance mechanism against these negative events. In a second chapter, the results of a portfolio simulation integrating corporate ESG performance will be presented. A portfolio manager can improve the aggregate level of ESG performance of the portfolio by 1.5 standard deviations without decreasing the financial performance. Thus, the manager can combine this integration with financial asset allocation strategies or absolute return strategies. In a third chapter, I analyze the results on the reduction of the cost of debt due to a good environmental and social performance of emerging sovereigns. Finally, in the fourth chapter I describe how the governance performance of sovereigns influences the difference between the yield issued in foreign currency and that issued in local currency. In developed countries this difference increases with political risk, i.e. foreign yield increases faster than domestic yield. In emerging countries, the opposite effect is observed. This difference between the two yields varies more strongly with an increasing proportion of domestic debt held by foreign investors.

This doctoral dissertation addresses socially responsible investing from several perspectives. First, we seek to determine how companies respond to shareholder engagement on environmental and social issues. Our analysis is based on a dataset of shareholder proposals at the annual general meetings of S&P 1500 companies. Through this analysis, we attempt to measure the impact of voting or withdrawing a proposal on the company's extra-financial performance. After controlling for potential endogeneity problems, we find a positive association between the submission of both environmental and social proposals in the same year and the improvement of the firm's extra-financial performance, both in the short and long term. The results indicate that strong shareholder engagement on various issues can lead to changes in the extra-financial performance of companies. Our research also focuses on studying the voting dynamics underlying shareholder proposals. We try to determine how proposals on similar issues, voted on (or withdrawn) in the past or in the same year, can affect the voting outcome for a proposal today. The results show that when an issue has been the subject of a shareholder proposal in the past, a new proposal on that same issue would receive less support from shareholders today. On the other hand, a low level of shareholder support for a proposal in the past would mean less shareholder support for a proposal in a similar theme today. We also look at the extent to which ESG information is integrated into financial information flows, and in particular whether financial analysts take non-financial information into account in their financial projections. We find that financial analysts expect an improvement in corporate benefits to translate into lower earnings per share (EPS) in the short term, whereas this effect is not apparent when based on realized EPS, which would suggest that financial analysts are wrong in their estimates. However, a decrease in social defaults (i.e. an improvement in the company's social policy) results in both an improvement in estimated EPS and an increase in realized EPS. Consequently, financial analysts seem to correctly anticipate the positive impacts generated by the improvement in social default, which is then perceived as a positive signal for the company's financial performance.

: We propose a simple classroom experiment on speculative bubbles: the Bubble Game. This game is useful to discuss about market efficiency and trading strategies in a financial economics course, and about behavioral aspects in a game theory course, at all levels. The Bubble Game can be played with any number of students, as long as this number is strictly greater than one. Students sequentially trade an asset which is publicly known to have a fundamental value of zero. If there is no cap on asset prices, speculative bubbles can arise at the Nash equilibrium because no trader is ever sure to be last in the market sequence. Otherwise, the Nash equilibrium involves no trade. Bubbles usually occur with or without a cap on prices. Traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate.

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In the face of a rather negative view of managerial overconfidence in the academic literature in economics and management (analyzed in the first chapter of this thesis), we present more positive implications of this bias on the performance of firms. Thus, in Chapter 2 we conduct an empirical study that takes into account the endogeneity of managerial overconfidence and its contingency to contextual factors such as corporate governance and executive compensation. We show that when we correct for the endogeneity bias in the data (via the double difference method) we observe a positive relationship between managerial overconfidence and performance. Then, in Chapter 3 we propose a theoretical model that aims to present a potential mediator of this relationship. Our model predicts that an overconfident leader would introduce incentive tournaments within the managerial team more often than a rational leader. These tournaments would increase the total effort level of the managerial team members and thus improve the firm's performance. Finally, in Chapter 4 we show via a study of nascent entrepreneurs that two different types of confidence, confidence in one's own competence and confidence in the success of the entrepreneurial opportunity, have opposite effects on the probability of success of the entrepreneurial process. The first type has a positive effect while the second has a negative effect on the probability of creating a functioning business.

This thesis consists of three separate chapters. In the first chapter, I test the hypothesis that the display format of financial information affects the decisions of individual investors. I show that a more efficient display allows individuals to better manage their limit orders by minimizing the adverse selection risk incurred by using these orders. This suggests that individual investors have bounded rationality. In the second chapter, I test whether liquidity-providing trading strategies can generate profits, after transaction costs, for the active traders who implement them. I show that only individuals in the highest performance decile can persistently beat the market using highly contrarian strategies that require the massive use of limit orders. Limit-to-arbitrage seems to explain this phenomenon. In the third chapter, I study individuals' strategies around earnings announcements. I show that round-trips that are implemented one day before an announcement generate on average higher profits and are shorter in duration than those implemented in normal times. Individuals close their winning positions on the day of the announcement, which may slow down the price adjustment following the announcement.

We use the Bazacle company of Toulouse's unique historical experience as a laboratory to test asset pricing theory. The Bazacle company is the earliest documented shareholding corporation. Founded in 1372 and nationalized in 1946, it was a grain milling firm for most of its 600 year history. We collect share prices and dividends over its entire lifespan. The average dividend yield in real terms was slightly in excess of is 5% per annum, while the long-term price growth was near zero. The company's unique full-payout dividend policy allows us to estimate an asset pricing model with fundamentally persistent dividends and a time-varying risk correction. The model is not rejected by the data. Variations in expected future dividends are found to explain between one-sixth and one-third of variations in prices. Moreover, the risk correction is correlated with macroeconomic shocks, in particular with the volatility of grain prices.

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This thesis concerns decisions in complex situations that involve economic and moral values. Chapter 2 introduces moral decisions in economic contexts by proposing situations of empirical interest. The topic of Chapter 4 is restoring trust in mutual funds. The main results suggest that the positive effects of the SRI approach depend on the similarity of the individual investor's values with those of the fund. Chapter 5 provides a picture of the social acceptability of executive compensation and the social acceptability of a company's overall compensation policies. The main result indicates the existence of groups of people who are judged on the basis of personal views on the justice of compensation. Chapter 6 introduces an experimental game (the conceal-reveal dilemma) that allows for the study of individuals who have a choice between revealing and hiding benefits that would be judged as undeserved by others. The main result is that choices are not based on a cost-benefit analysis. Consequently, appealing to moral values may be an interesting alternative in such situations. Finally, the last two chapters (Chapter 7 and Chapter 8) discuss the theoretical and practical implications of these empirical results.

Our thesis deals with the themes of corporate social responsibility (CSR), its relationship with the economic and financial performance of the company, and socially responsible investment (SRI). These themes have recently gained in popularity, favored by a context of economic and environmental crisis. Our thesis consists of four main chapters. Our first chapter is a review of the academic literature on CSR and SRI. We propose an interdisciplinary review of the academic literature shared between economics and management sciences (ethics applied to companies, strategy and finance). Our second chapter is an empirical analysis of the relationship between CSR and corporate financial performance from the perspective of the cost of capital. We examine the impact of the publication of a CSR policy rating on the liquidity of a firm's shares and the size of its shareholder base. Our third and fourth chapters analyze the properties of SRI portfolios constructed using new allocation methods. Thus, we analyze how risk-based allocation strategies modify the performance of portfolios of financial assets issued by issuers with a CSR policy, and conversely how an investment universe composed only of issuers with a CSR policy modifies the properties of these alternative allocations.

We propose a bubble game that involves sequential trading of an asset commonly known to be valueless. Because no trader is ever sure to be last in the market sequence, the game allows for a bubble at the Nash equilibrium when there is no cap on the maximum price. We run experiments both with and without a price cap. Structural estimation of behavioral game theory models suggests that quantal responses and analogy-based expectations are important drivers of speculation.

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This thesis investigates the theoretical and empirical consequences of considering socially responsible indicators in traditional portfolio selection. The first chapter studies the significance of the loss of mean-variance efficiency of a sovereign bond portfolio when a constraint is introduced on the average socially responsible rating of governments. Using a sample of developed government bonds over the period 1995-2008, we show that it is possible to significantly increase the average socially responsible rating without losing significantly in terms of diversification. The second chapter proposes a theoretical analysis of the effect on the efficient frontier of a constraint on the socially responsible rating of the portfolio. We highlight the different scenarios that can occur depending on the correlation between expected returns and socially responsible ratings and the investor's risk aversion. Finally, since the question of the efficiency of portfolios invested according to socially responsible criteria is debated in the financial literature, a last chapter proposes a new mean-variance efficiency test in the realistic case where no risk-free asset is available.

The objective of this thesis is to study the role that firm diversification and ownership structure play in the value creation process. The second chapter is devoted to a literature review of theoretical and empirical works that analyze the impact of ownership structure and firm diversification on the market value of firms. The third chapter deepens the analysis of firm diversification by studying the interaction effect between product diversification and international diversification. This chapter considers the relationship between diversification and capital structure in a sample of Italian manufacturing firms. Our findings allow us to argue that this interaction effect has a negative impact on debt capacity. Finally, the fourth chapter studies the impact of a multiple shareholder structure on firms' risk taking. The analysis is conducted on firms listed on the US financial market. Most previous studies on ownership structure focus on the differences between firms with at least one reference shareholder versus firms with scattered ownership, without considering the potential effect of multiple blockholders on stock volatility and performance. We show that blockholders play an important role in mitigating conflicts of interest between majority and minority shareholders.

This thesis studies price formation in experimental financial markets, with common value and asymmetric information, inspired by Plott and Sunder (1982, 1988). The first chapter presents the interest of the experimental method in finance related to the control of the environment and the quality of the observation, and proposes a review of the literature on experimental finance (CAPM, price efficiency, microstructure, market rationality). In the second chapter, I) a double auction, II) a fixing followed by a double auction, and III) a pre-opening period and a fixing followed by a double auction are experimented. Equilibrium strategies are computed. In our experimental markets, the pre-opening facilitates the discovery of equilibrium strategies. This discovery is improved by the experiment when subjects are given the right incentives. The relationship between the psychological traits of investors and their behavior is analyzed in the third chapter. The traits (impulsivity, social intelligence, overconfidence, availability and representativeness rules, and confirmation bias) are measured by administering a questionnaire to subjects. These subjects then participate in experimental financial markets. Impulsive subjects place more orders but do not suffer more losses than other individuals. Overconfident subjects realize more losses than others, and confirmation bias and the use of the representativeness rule slow down the learning of equilibrium strategies. The fourth chapter compares a Walrasian trial and error (TW) and a fixing market (MF). These two institutions are strategically equivalent. In our experimental markets, price efficiency is almost perfect in both market structures. On the other hand, transaction costs are lower in the TW than in the MF where investors are unable to discover equilibrium strategies.