This issue of The Journal of Risk appears at a time when the Covid-19 virus and its wider effects are dominating life the world over. This episode has brought to the fore a variety of interconnections that, while not explicitly visible, are certainly profound. In this vein, two of the articles in this issue address topics that regard broad patterns of interconnectivity in a financial context.
In our first paper, “The impact of corporate social and environmental performance on credit rating prediction: North America versus Europe”, Gregor Dorfleitner, Johannes Grebler and Sebastian Utz show that particular measures of social and environmental performance affect credit risk. They find that both aspects are significant for North America while only the social measure is significant for Europe: this the authors attribute to the notion that the drivers in the former region are corporations while it is states that are the drivers in Europe.
To the extent that herd behavior illustrates the broad impact that decisions made by individuals can have on others, the issue’s second paper addresses herding behavior’s effect on real estate investments. In “Economic policy uncertainty, investors’ attention and US real estate investment trusts’ herding behaviors”, Wei-Ling Huang, I-Chun Tsai and Wen-Yuan Lin consider how investors process the uncertainty associated with major macroeconomic decisions. They show that herding behavior in US real estate investment trusts is driven by investors’ rational interpretation of the uncertainty of related economic policies, thus mitigating any adverse impact that results from them.
The third and final paper in this issue, “Fund size and the stability of portfolio risk” by Martin Ewen and Marc Oliver Rieger, examines the relationship between the size of active portfolios and the stability of their risk measures. The authors present evidence of a significant negative relationship between balanced and fixed-income portfolios but not for equities. While portfolio size has been associated with decreasing returns to scale, this study offers support for the tendency of equity fund managers to scale up their strategies as they grow rather than diversifying. It also gives an explanation for the growth of actively managed portfolios in the face of very competitive index-based funds.
Warrington College of Business, University of Florida
The impact of corporate social and environmental performance on credit rating prediction: North America versus Europe
The authors quantify the extent to which the quality of credit rating predictions improves by integrating measures of corporate social performance (CSP) in an established credit risk model. Their analysis provides comprehensive evidence of the…
Economic policy uncertainty, investors’ attention and US real estate investment trusts’ herding behaviors
Using a quantile regression model, this study examines economic policy uncertainty and investors’ attention for policy risk on US real estate investment trusts’ (REITs’) herding behaviors.
This paper examines the relationship between portfolio size and the stability of mutual fund risk measures, presenting evidence for economies of scale in risk management.