Our faculty conducts cutting-edge research, that is relevant to the investment management industry. Investing in faculty research support, deepening ties within the research community as well as between research and industry and practitioners in the investment management arena is an important aspect of the center’s mission.

Select Applied Research Spotlights

Ric Colacito, Professor of Finance

Using Twitter to measure international climate attention: What does it mean for global currencies and stock markets?

Our expert: Ric Colacito is a professor of finance and Sarah Graham Kenan scholar at UNC Kenan-Flagler. He is also the faculty director of the Center for Excellence in Investment Management and a research associate at the National Bureau of Economic Research. He is a world expert on international finance and wrote several papers on climate change, one of which shows that attention to each country’s climate news helps to predict its foreign exchange rate.

Main takeaways: In the study, coauthored with researchers from China, Italy and Mexico, Colacito analyzed over 23 million tweets covering climate news for 25 different countries. “Climate news, and its timing, matter to the local economy,” says Colacito. “We can use the data to see how each country’s climate attention relates to global climate attention.” Colacito adds, “Take a country that often shows higher media attention to climate when the rest of the world is also focusing more on climate. Let’s call it an `exposed’ country. Korea, Hong Kong and China are good examples. Such countries will experience future currency appreciation and a decrease in net exports.”

For practitioners: “This information can be useful for currency and equity trades alike” says Colacito. “Following days marked by a positive spike in global attention to climate, you can expect higher foreign exchange return in exposed countries.” Colacito adds, “Not only that, but brown stocks in these countries will have future negative returns when these events happen, which may be a good time to short these polluting firms. We made our climate attention series available online  and we hope the industry will use them.”

Gill Segal, Associate Professor of Finance

How to find stable firms in an era of post COVID disruptions.

Our expert: Gill Segal is an associate professor of finance at UNC Kenan-Flagler. He is the capital markets and investments concentration lead. He studies how the stock market reacts to production networks, and coauthored a study about how firms use trade credit to make the relationship with their customers more stable.

Main takeaways: Segal showed, together with Yunzhi Hu, also from UNC Kenan Flagler, and Fotis  Grigoris from the University of Iowa, that by extending more trade credit firms are able to retain their better customers longer. Segal added, “This hedges firms from the risk of losing a customer, which is costly. The stock market understands. We can see that firms that extend more trade credit are perceived safer by investors – they earn a lower expected return.”

For practitioners: Segal explained that “corporate managers can use this insight to stabilize supplier-customer links by offering more trade credit. Of course, a trade-off exists between default risk and customer replacement risk.” He also notes that “In the aftermath of COVID’s supply chain disruptions short-term investors seeking safety should diversify their portfolios by selecting firms that offer more trade credit. Based on historical data, these are often firms with better-quality customers.”

Adam Reed, DIstinguished Professor of Finance

Looking for an investment idea? Just follow the short sellers!

Our expert: Adam Reed is Julian Price Distinguished professor of finance at UNC Kenan Flagler, and the finance area chair. He is a world expert on short selling and coauthored a recent study showing short-sellers’ best ideas can not only be revealed, but also worth following.

Main takeaways: “Short sellers’ preferences can be revealed by equity loan fees,” Reed explains. “To short a stock, a trader must borrow shares and pay a loan fee, so you can track the stocks that short sellers are willing to pay the most to short.” The study then shows that loan fees are an extremely good predictor for future stock returns, with stocks having high loan fee having substantially lower returns in the future.

For practitioners: Reed says that loan feeds are “arguable the single best predictor of cross-sectional returns in modern data.” He explains that practitioners can create a portfolio that longs stocks with the highest loan fee and shorts those with the lowest fee. “This strategy yields the highest Sharpe ratio and the highest percent of months with positive returns compared to a host of other known strategies including value, size and momentum styles,” Reed adds.

Supporting the research mission

Since its inception the center has provided financial support that contributed to UNC Kenan-Flagler’s research mission in Investment Management. Such funding is essential in supporting the high impact research programs of UNC Kenan-Flagler faculty. The center provides significant support for the biennial UNC/Duke Asset Pricing Conference, a premier event that attracts academic researchers from across the country, including several Nobel Prize winners. Funding also supports conference and research travel, the purchase of databases and publications, specialized computing equipment, and research assistance.

Select publications

“Insurers as Asset managers and Systemic Risk”, Review of Financial Studies (2022)
“How Does Human Capital Affect Investing? Evidence from University Endowments“, Review of Finance (2022)
“Should Defined Contribution Plans Include Private Equity Investments?“, Financial Analysts Journal (2022)
“Nowcasting Net Asset Values: The Case of Private Equity“, Review of Financial Studies (2022)
“Crowded Trades and Tail Risk“, Review of Financial Studies (2021)
“Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows“, Review of Financial Studies (2021)
“Finding Fortune: How Do Institutional Investors Pick Asset Managers?“, Review of Financial Studies (2021)
“Business Cycles and Currency Returns”, Journal of Financial Economics (2020)
“Determinants of International Buyout Investments“, Journal of Financial and Quantitative Analysis (2020)
“Private or Public? Determining the Optimal Ownership Structure“, Journal of Portfolio Management (2020)
“Production Networks and Stock Returns: The Role of Vertical Creative Destruction“, Review of Financial Studies (2020)
“Temperature and Growth: a Panel Analysis of the United States”, Journal of Money, Credit, and Banking (2019)

Selected media coverage

“A Slow Burn”, Endeavors (2023)
“Climate Change Mitigation is Vital – But It’s Not Part of the Fed’s Mandate,” Fortune (2022)
“As Regulators Scrutinize Private-Equity Performance Reporting, Researchers See Value in Alternative Metrics,” The Wall Street Journal (2022)
“Investors Rely More and More on Higher Returns from Private Markets,” The Economist (2022)
“Capital Controls are Becoming Disturbingly Popular,” Bloomberg (2020)
“Scientists Prove Crowded Hedge Fund Stocks Are Real and Risky,” Bloomberg (2019)
“Crowded Trades & Tail Risk,” ETF.com(2019)
“Climate Change May Deeply Wound Long-Term U.S. Growth, Richmond Fed Paper Finds,” The Wall Street Journal (2018)
“Most Economic Forecasts Have a Big Blind Spot: Climate Change,” CNN (2018)
“Why Alternative Asset Managers Make the Best Board Members,” Institutional Investor (2018)