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Champagne C., F. Coggins et A. Sodjahin

Are changes in extra-financial ratings a (un)sustainable source of abnormal returns?

Using a conditional asset pricing model approach, this study investigates how the Canadian stock market reacts to changes in extra-financial ratings related to environmental social and governance (ESG) factors. Our results suggest that upgrades (downgrades) in CSR ratings lead to negative (positive) abnormal returns (alpha). This result is consistent with the notion that the expected stock return or cost of capital must be lower (higher) for socially responsible (irresponsible) firms because they are associated with lower (higher) risk.

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Champagne C., S. Chrétien et F. Coggins

Equity Premium Predictability: Combination Forecasts versus Multivariate Regression

This paper examines the combination forecast and multivariate regression approaches for equity premium predictability. We evaluate 27 specifications with a unique Canadian database to avoid the data mining inherent in using common U.S. data. We find significant predictive evidence for most models. In sample, multivariate regression predictions perform better than combination forecasts, although regression results display evidence of instability and overfitting. Out of sample, combination forecasts are superior when relying on many individual models, but imposing economic restrictions on multivariate regression predictions yields similar performance. Both approaches show that incorporating information from numerous variables improves forecasting precision and economic value.

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Sodjahin A., C. Champagne et F. Coggins

Corporate bond market interdependence: Credit spread correlation between and within U.S. and Canadian corporate bond markets

This study investigates the correlation and interdependence between and within the U.S. and Canadian corporate bond markets. The empirical framework adopted allows credit spreads to depend on common systematic risk factors derived from structural models and incorporates dynamic conditional correlations (DCC) between spreads. Results show that there is a surprisingly weak correlation between the two markets in normal times. However, during crises, there is a sudden and strong increase in the correlation between U.S. and Canadian credit spreads. The analysis of credit spread correlation within each market also shows an unusual increase in credit spread correlations between sectors and between risk classes in the U.S. during the 2007-2009 global financial crisis. This increase persists over the post-crisis period. By contrast, in Canada, credit spread correlations between sectors remain remarkably stable over time, suggesting an interdependence of credit spreads within the Canadian market.

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Chrétien S. et F. Coggins

Additional Evidence on Information Variables and Equity Premium Predictability

This paper presents the most comprehensive out-of-U.S.-sample examination of information variables and equity premium predictability by focusing on Canada to reassess the growing U.S.-based evidence casting doubt on predictability. Using monthly data for 36 variables from 1950 to 2013, we test their individual predictive ability and provide a new empirical assessment of the related econometric issues. We find conclusive and robust evidence of in-sample, out-of-sample and economically meaningful predictability of the Canadian equity premium, providing guidance on each variable as a market indicator. Our results nevertheless raise questions on some variables that have been successful U.S. predictors.

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Sodjahin A., C. Champagne, F. Coggins et R. Gillet

Leading or Lagging indicators of risk? The informational content of extra-financial performance scores

This study investigates the informational content of extra-financial agency scoring by examining the relationship between firm beta and extra-financial performance score upgrades and downgrades. Specifically, we study the variations in the extra-financial score of 266 Canadian corporations between 2007 and 2012 with a conditional model.  We find no evidence that changes in firm beta precedes changes in extra-financial scores. Rather, our results suggest that a firm’s systematic risk increases following a downgrade of its extra-financial performance. In terms of score upgrades, the overall effect is not significant. However, score upgrades for firms with already-high scores predict higher systematic risk, while score upgrades for firms with low scores predict lower systematic risk. These results suggest that extra-financial scores are informational and can be useful to portfolio managers, notably for their risk management strategies.


Vers une finance responsable intégrée

Groupe de recherche en finance responsable - GREFA

Le GReFA est un groupe de recherche de l'École de gestion de l'Université de Sherbrooke qui a obtenu la reconnaissance institutionnelle en 2009. Fort d’expertises variées et complémentaires, les thématiques de recherche du GReFA traitent des quatre grands segments de la finance : la finance de marché, d’entreprise, institutionnelle ainsi que les finances publiques. Il regroupe quatorze chercheurs réguliers de l’Université de Sherbrooke, ainsi que des chercheurs associés à d’autres universités (Université Laval, Université du Québec à Montréal, Université d’Ottawa, Concordia University, Université Paris1 Panthéon – Sorbonne, etc.) et des chercheurs issus du milieu de la pratique (Caisse de Dépôts et Placements du Québec, Autorité des Marchés Financiers, Hydro-Québec, etc.).