Kees Koedijk

Utrecht University | UU · Department of Finance

This paper investigates the impact of ESG score on the risk spillover effect between China's carbon market and stock markets, especially the exact transmission mechanisms for such effects to function. Employing the least absolute shrinkage and selection operator-vector autoregressive-Diebold-Yilmaz spillover (LASSO-VAR-DY) method, we assess the deg...

This paper presents a literature review with the aim of facilitating investment funds to understand the practical question of whether investing responsibly can make a fund's portfolios more sustainable without compromising their return/risk profiles. The study contains most of the leading ESG research from the past two decades. We conclude from thi...

We conceptualize that CEOs who endure traumatic experiences stemming from man-made disasters practice less corporate social responsibility. We exploit a natural experiment—the Great Chinese Famine—to empirically test this hypothesis. We find that (i) firms with CEOs who experienced the Great Chinese Famine score lower in corporate social responsibi...

Dear colleagues, Environmental, Social, and Governance (ESG) refer to the three central factors in measuring the sustainability and societal impact of an investment in a corporate entity (Friede et al. 2015; Ketter et al. 2020; Van Duuren et al. 2016; Vo et al. 2019). The ESG perspective emphasizes social objectives beyond the traditional financi...

When companies select and use compensation peers to determine chief executive officer (CEO) compensation, they create unintended peer effects on corporate innovation due to the similarities between these companies and their compensation peers in terms of product markets, CEO characteristics, and compensation schemes. After controlling for industry...

This special issue contains a selection of articles on globalization and fintech. The contributions provide new insights on reform of the international economic order, paying special attention to uncertainty and economic policy coordination. They will certainly help improve our understanding of these topics.

This paper applies a difference‐in‐differences framework to explore the economic consequences of the recent U.S.‐China trade war. The average abnormal returns of Chinese listed firms during a period centered on President Trump’s announcement of March 22, 2018 are taken as a proxy for the firms’ exposure to the potential trade war. Firms more negati...

We theorize that CEOs who endure traumatic experiences stemming from man-made disasters practice less corporate social responsibility. We exploit a natural experiment-the Great Chinese Famine-to empirically test this hypothesis. We find that (i) firms with CEOs who experienced the Great Chinese Famine score lower in corporate social responsibility...

This paper proposes a new metric to gauge investor sentiment using a relative valuation method. We combine investor behavioral finance traits and option-implied standard deviations under both the real-world probability (P) valued most in the view of uninformed investors and the risk-neutral space (Q) adopted when there exists no cognitive error. Gi...

Purpose While the classic futures pricing tool works well for capital markets that are less affected by sentiment, it needs further modification in China's case as retail investors constitute a large portion of the Chinese stock market participants. Their expectations of the rate of return are prone to emotional swings. This paper, therefore, explo...

This study investigates the relationship between firms’ export performance and prior investment experience in the corresponding country by using a novel dataset of Chinese firms. We find that a firm’s export performance, in terms of value, quantity, unit price level, and product varieties, is considerably better in destination countries where the f...

This study aims to investigate the day‐of‐the‐week effect of cross‐market leveraged exchange‐traded funds (LETFs) in the Taiwanese stock market. We find that Wednesday's overnight returns are significantly positive for bull 2X LETFs tracking major stock indices of the Chinese market, whereas no such an effect is found for ETFs tracking local or oth...

Capital inflows have a strong presence that influences destination countries’ development of institutions, which can in turn help resuscitate a stopped economy and re-attract capital that was lost during crises such as the recent public health crisis. While the previous literature emphasizes the mechanism that foreign investors press or even threat...

This paper examines the equity market return predictability of institutional investor sentiment, in comparison to individual investor sentiment. Our findings suggest that institutional traders are informed and that their sentiment helps to tilt stock prices towards the intrinsic value. This is because the sentiment of institutions encompasses news...

Traditionally, the relationship between a firm's performance and its business strategy is studied using structured data taken from proxy statements and financial reports. However, there have been increasing efforts to explore the linkages between corporate outcomes and unstructured information, such as text or image/audio/video files. Until recentl...

This paper examines the valuation effect of capital account liberalization. Using an event study approach and the policy announcement for RMB Qualified Foreign Institutional Investors (short for RQFII) as the event date, we find that overall, the stock market responded positively to the capital account liberalization announcement. In addition, we p...

‘De kleine Keynes’ van Harry van Dalen en Kees Koedijk is een handige samenvatting van het gedachtegoed van de Britse econoom John Maynard Keynes, een veelzijdig intellectueel die een grote betrokkenheid voelde bij het wel en wee van de wereld. Zijn bekendste werk ‘The General Theory of Employment, Interest and Money’, dat in 1936 verscheen, domine...

This chapter discusses different types of investment management organizations, ranging from fully outsourced to fully insourced. We discuss implementation issues regarding the investment organization that currently dominate an industry‐wide debate among trustees. “Alignment of interests” is such an example of a highly debated issue, because the int...

In this chapter trustees will read how to develop an effective mission and set of goals, partly by learning from other pension funds. We offer guidance on how to translate vision and mission into practical but powerful goals. In turn, these are translated into concrete return objectives and a risk appetite, formulated as a risk appetite statement....

Implementation is the process that puts the pension fund's plans and strategies into action in order to achieve its goals and objectives. This chapter takes a closer look at how the fund's strategic plan should address the essential aspects of implementation that will ultimately determine the success (or failure) of an investment strategy. We discu...

The primary role of the board is defining the goals, organizing the investment process, and monitoring and (re)adjusting choices in order to adapt to any changing circumstances. This chapter reviews the fiduciary responsibilities of the board. We then translate these findings into the strategic design of the investment management organization and i...

This chapter takes a strategic perspective to the investment management process and identifies five investment approaches models that currently dominate the pension fund industry worldwide. Boards may not necessarily be aware of this, but usually they have been given the advice to incorporate one of these main investment approaches. Its adoption in...

This chapter discusses the role of pension funds and the board of trustees. Why do large collective organizations (still) exist in a world where the global financial order and system are transforming at such a breakneck pace and with such profound impact on the structure and configuration of institutions? What part do they play within this context,...

This chapter provides the reader with self‐reflections questions that can be used to perform a self‐assessment. What is the level of practice of your fund? How well are you doing? Did you think of all the steps in a process? The chapter presents useful questions to conduct a self‐assessment and serves as a reminder of important questions that nobod...

In portfolio construction, the actual synthesis of fund objectives and capital market expectations of relevant asset classes takes place, ultimately resulting in the fund's asset allocation. The chapter considers the fact that trustees have a wide range of choices to make at this stage of the design process, including asset allocation and diversifi...

This chapter provides the trustees a practical instrument with which they are able to assess their fund's status in terms of achieving sustainable investment excellence. The chapter equips the trustee with the necessary intelligence and practical tools that will allow the board to transform into a perpetual “learning board".

Suboptimal (inefficient) governance of pension funds comes at a significant cost and is thus one of the biggest concerns for board members and those involved in the actual execution of the investments. In this respect, the monitoring function is one of the least thought‐out components in the investment management process. This chapter discusses dif...

The board is highly dependent on the investment committee. It is therefore imperative that the board has articulated how they (should) work together. We highlight the position of the investment committee in more detail. We discuss how investment committees serve the specific goals and investment process of a particular fund best. Correspondingly, w...

This chapter covers what is required from a board to make decisions. The profession of a trustee is hard work that involves the development of an appropriate strategic agenda fitting the fund's mission, goals and objectives. We analyze what exactly is required for a board to actually make a good investment decision. Whatever the procedure of decisi...

Observed from a distance, most pension funds and their investment processes look alike. What sets them apart from each other, however, are their underlying choices and decisions. These can differ quite fundamentally and completely change the entire structure and fabric of the pension organization. It is imperative that such underlying choices are i...

The day‐to‐day implementation of investments may seem bewildering and complex. However, the key concepts of investment theory are actually not as obscure as one may think. For a trustee to become relatively fluent in investment terminology, it requires them to get comfortable with roughly ten building blocks. From the perspective of the trustee, we...

We take a detailed look at the investment process, translating the mission, vision, goals, and beliefs into actual investment choices and investments. The portfolio management process is an integrated combination of steps that need to be taken in a consistent and coherent manner in order to create and maintain an appropriate portfolio that meets th...

De bureaucratie om onderzoeksgelden te verdelen begint uit de hand te lopen. Dat is de mening van het Me Judice Economenpanel. De zoektocht naar een alternatief allocatiemechanisme is dan ook zeker gewenst. Een voorstel om een belangrijk deel van het onderzoeksgeld door individuele wetenschappers zelf te verdelen voorkomt weliswaar de bureaucratie...

It is well-established that, when confronted with a decision to be taken under risk, individuals use reference payoff levels as important inputs. The purpose of this paper is to study which reference points characterize decisions in a setting in which there are several plausible reference levels of payoff. We report an experiment, in which we inves...

Greater personal responsibility towards financial decision-making is being advocated on a global basis. Individuals and households are encouraged to take a more active approach to personal finance. In this paper, we examine behavioral factors, which lead households towards savings and financial planning across a panel of 1,253 Dutch households. In...

Economen wordt vaak om advies gevraagd of om een visie, maar hoe vrij is de blik van de econoom van politieke voorkeuren en waarden die hij of zij koestert? De economen Van Dalen, Klamer en Koedijk hebben de proef op de som genomen onder Nederlandse economen en komen tot de conclusie dat deze elementen een grote rol spelen in de uitspraken die men...

Wat is een goede econoom? En in hoeverre staat die ver af van de econoom die vaak om advies wordt gevraagd, namelijk de academische econoom? Volgens een enquête van Van Dalen, Klamer en Koedijk krijgen in de praktijk de generalist waardering, terwijl aan de universiteit juist de specialist zijn brood verdient die druk bezig is met fondsen werven. D...

We study the economic significance of social dimensions in investment decisions by analyzing the holdings of U.S. equity mutual funds over the period 2004-2012. Using these holdings, we measure funds' exposures to socially sensitive stocks in order to answer two questions. What explains cross-sectional variation in mutual funds' exposure to controv...

Economen worden veelvuldig in het publieke debat gehoord maar hun gedrag en uitlatingen roepen ook veel irritatie op. De clichébeelden over economen zijn niet van de lucht. Maar kloppen die beelden wel? Zijn zij, zoals sommigen beweren, vervreemd van de samenleving waarin zij leven? Op die vragen geven Harry van Dalen, Arjo Klamer en Kees Koedijk e...

John Maynard Keynes is weer de meest gerespecteerde econoom in Nederland en dat is veelzeggend volgens Harry van Dalen, Arjo Klamer en Kees Koedijk. Het is een terugkeer die omgeven is met een ambigue houding onder economen, zo blijkt uit hun grootscheepse enquête onder economen. Keynes herinnert ons aan het belang van de korte termijn, 'animal spi...

D66 gaat de komende verkiezingen groots winnen; de PvdA en de VVD verliezen flink. Althans als het aan economen ligt. Zo blijkt uit een recente enquête van Van Dalen, Klamer en Koedijk. Daarmee wordt duidelijk dat de afgelopen twintig jaar het wereldbeeld van economen fundamenteel is veranderd.

Factors represent certain parts in the market, which are more attractive in the long term than other parts. In the case of equities for example, leading academic studies demonstrate that momentum, small cap and low-volatility stocks systematically generate higher risk-adjusted returns. Factors can also be applied in other asset classes such as bond...

Irving Fisher was the first economist to posit what has come to be known as uncovered interest parity relation. He was also the first to offer a peso-problem type explanation for important episodes in which it was violated. After reviewing his theoretical and empirical work on this subject, we go on to reexamine both his data and several other bodi...

A significant number of institutional investors publicly state the belief that corporate stakeholder relations are associated with firm value in a manner that the financial market fails to understand. We investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors’ expectations and ultimately ceased to do s...

In this paper we investigate and evaluate factor investing in the US and Europe for equities and bonds. We show that factor-based portfolios generally produce comparable or better portfolios than market indices. We expand the analysis to other asset classes and factors, work with other optimisation methods and add a basic liability structure. The r...

How do pension fund trustees deal with demographic and economic shocks? We examine this issue by using a vignette study among pension fund trustees in the Netherlands. Trustees show asymmetric reactions to shocks in the level of reserves of pension funds. Pension premiums are upwardly flexible but trustees are reluctant to decrease premiums. Asymme...

Financial well-being is distinct from income. Some people with high incomes suffer low financial well-being, as their incomes fall short of their aspirations. Such people feel propelled to reach their aspirations by taking risk and willing to bear losses. Conversely, some people with low incomes enjoy high financial well-being, as their incomes exc...

A significant number of institutional investors publicly state the belief that corporate stakeholder relations are associated with firm value in a manner that the financial market fails to understand. We investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors’ expectations and ultimately ceased to do s...

This study adds new insights to the long‐running corporate environmental‐financial performance debate by focusing on the concept of eco‐efficiency. Using a new database of eco‐efficiency scores, we analyse the relation between eco‐efficiency and financial performance from 1997 to 2004. We report that eco‐efficiency relates positively to operating p...

The segmentation of the socially responsible investing (SRI) movement with a values-versus-profit orientation solves the puzzling evidence that both socially responsible and controversial stocks produce superior returns. We derive that the segment of values-driven investors primarily uses “negative” screens to avoid controversial stocks, while the...

Perhaps one of the puzzling aspects of the investment industry is that pension funds and asset managers seem to get along so well. In the past years, the costs and complexity of trustees’ investments has been steadily rising. So have the incomes of asset managers, their advisors and other intermediaries, despite the fact that asset managers have no...

“To pay no attention to costs is probably the biggest dumb mistake investors can make.”1 The words strike home from the mouth of John (“Jack”) Bogle, a veteran in the investment industry, widely known as the founder of one trillion dollar asset management firm Vanguard Group. He estimates that total costs in 2007 amounted to $528 billion in the US...

How do you hold on to your investment style when things are getting ugly for your company in terms of performance? Brandes Investment Partners, managing $42 billion in value-oriented strategies for their clients, has been down this road many times since its founding in 1974.

Having the right investment beliefs is crucial; so is putting them into practice. This chapter provides guidelines for trustees and investment managers for delivering the right results. The essential point throughout the book is that finance is a relatively young discipline in which data are limited, biased, or both; and in which the ratio of noise...

Two decades ago it used to be easy to run an asset allocation strategy for a UK pension fund: buy some bonds and a bit of property, but the largest slice of the pie – approximately 70% – should be in equity.1 However, when risk management became the core of the thinking, exciting changes were bound to happen. In 2001, the pension fund of Boots, the...

“Be like Yale!” Following up on the remarkably strong investment performance of Yale Endowment over the past 20 years, this slogan has become well-known among institutional investors worldwide. While few will publicly acknowledge that they are mimicking Yale Endowment Fund, asset allocation speaks louder than a thousand words. And why not be like Y...

Many investors would not consider swapping oil for equities a good diversification deal. Yet it paid off remarkably well for the Norwegians. Windfall wealth is a once-in-a-lifetime opportunity that ultimately challenges decisionmakers on whether to use it for pet projects now, or save it and increase longterm wealth. The Dutch chose the former in t...

Strangely enough, the extent to which performance is related to investment management attributes or characteristics is a largely unknown empirical question. Much attention is paid to investment management organizations and their products by market regulators, the media, institutional and retail investors, investment consultants and rating agencies...