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Essays in asset pricing: socially responsible investment, intertemporal and consumption models – evidence for us and global equity markets

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posted on 17.02.2017 by Xiao, Yuchao
This thesis undertakes empirical and theoretical research in asset pricing in both US and Global financial markets, with a particular focus on the financial impact of socially responsible investment (SRI) and implementation of the ICAPM and CCAPM frameworks in the US market. We aim to provide a comprehensive analysis of the financial impact of SRI on the US and Global equity markets and to resolve issues relating to the CCAPM that remain in the asset pricing literature. Prior studies that examine the financial impact of SRI produce mixed findings. Therefore, we begin by reviewing the relevant international literature and stress the importance of selecting appropriate SRI proxies in asset pricing tests. We enrich the literature by identifying areas that need to be carefully considered in constructing an SRI proxy and this will shed new light on the question of what measure of SRI should be used. In the first empirical chapter, we examine the financial impact of SRI on global equity returns, assessing our SRI proxies in the context of standard asset pricing models. We find that SRI has no significant impact on the global equity market. However, since SRI has become an increasingly popular practice only recently, our results may be hampered by data constraints. This motivates the next stage of the analysis wherein we employ the ICAPM framework. In Chapter 3, we formulate a two-factor empirical model under the ICAPM framework and construct SRI proxies by using the economic tracking portfolio method of Lamont (2001) to further examine whether SRI has financial impacts on the US equity market. Our findings in Chapter 3 are consistent with those of Chapter 2. The combined import of our findings in both chapters suggests that investors are free to implement SRI mandates without fear of breaching their fiduciary duties from inferior performance due to incorporating an SRI process. This will encourage the adoption of socially responsible investment strategies in practice. In the final chapter, we examine the empirical validity of the CCAPM that assumes investor’s utility is non-separable across states of nature. To our knowledge, it is the first to evaluate the cross-sectional implications of the recursive utility function of Epstein and Zin (1991) by using innovations in consumption growth. Based on these analyses, we conclude that a variable capturing innovations in consumption growth is significantly priced in asset returns.


Campus location


Principal supervisor

Philip Gharghori

Additional supervisor 1

Robert Faff

Year of Award


Department, School or Centre

Accounting and Finance


Doctor of Philosophy

Degree Type



Faculty of Business and Economics