Seminar – On ESG Investing: Heterogenous Preferences, Information, and Asset Prices

Professor Itay Goldstein, University of Pennsylvania

We study how environmental, social and governance (ESG) investing reshapes information aggregation by prices. We develop a rational expectations equilibrium model in which traditional and green investors are informed about financial and ESG risks but have different preferences over them. Because of the preference heterogeneity, traditional and green investors trade in opposite directions based on the same information. We show that the equilibrium price may not be uniquely determined. An increase in the fraction of green investors and an improvement in the ESG information quality can reduce price informativeness about the financial payoff and raise the cost of capital.

Speaker bio

Itay Goldstein is the Joel S. Ehrenkranz Family Professor and a Professor of Finance at the Wharton School of the University of Pennsylvania. He has been on the faculty of the Wharton School since 2004 and holds a secondary appointment as a Professor of Economics. Professor Goldstein currently serves as the Chairperson of the Finance Department and is also the Co-Director of the Wharton Initiative on Financial Policy and Regulation. Prior to that, he was the coordinator of the PhD programme in Finance and, in 2022, received the Provost’s Award for Distinguished PhD Teaching and Mentoring. Professor Goldstein earned his PhD in Economics in 2001 from Tel Aviv University. He is an expert in the areas of corporate finance, financial institutions, and financial markets, focusing on financial fragility and crises and on the feedback effects between firms and financial markets. His research has been published in top academic journals, including the American Economic Review, the Journal of Finance, the Journal of Financial Economics, the Journal of Political Economy, the Review of Economic Studies, and the Review of Financial Studies. His research has also been featured in the Economist, Wall Street Journal, Financial Times, Bloomberg, Forbes, National Public Radio, and other popular press.

Professor Goldstein is the Executive Editor of the Review of Financial Studies and is a Research Associate at the National Bureau of Economic Research. He has also been the editor of the Finance Department in Management Science and of the Journal of Financial Intermediation. Professor Goldstein has served as an academic advisor in various policy institutions, including the Federal Reserve Banks of New York, Philadelphia, and Richmond, the Bank of Canada, the Bank for International Settlements, the Committee for Capital Markets Regulation, and the International Monetary Fund. He was the co-founder and the first president of the Finance Theory Group and served as a director of the American Finance Association, the Western Finance Association, and the Financial Intermediation Research Society. He is a frequent speaker in academic and policy forums around the world and has been a keynote speaker in leading academic conferences. Prior to joining Wharton, Professor Goldstein served on the faculty of Duke University’s Fuqua School of Business. He also worked in the Research Department of the Bank of Israel.