Chris Geczy has been on the Finance Department faculty at the Wharton School of the University of Pennsylvania since 1997. He is Academic Director of the Jacobs Levy Equity Management Center for Quantitative Financial Research. He is also Academic Director of the Wharton Wealth Management Initiative at Wharton Executive Education. He has a B.A. in economics from the University of Pennsylvania and a Ph.D. in finance and econometrics from the Graduate School of Business at the University of Chicago (now the Booth School).
Dr. Geczy regularly teaches investment management and co-created the first full course on hedge funds at The Wharton School. In 2013, he created the school’s first survey course in sustainable/ESG investing, open to undergraduates as well as MBA and Executive Education students. He has created and taught many courses at Wharton Executive Education, and he has taught AIMR/CFA Institute-accredited professional Risk Management courses through the University of Chicago’s Booth School of Business.
He has been the Academic Director of a number of Wharton Executive Education programs including the 2009 Securities Industry Institute in partnership with SIFMA, the Private Wealth Management program in partnership with The CFA Institute, and programs for the Investments and Wealth Institute (formerly IMCA). In addition, he has taught Investment Management in the Penn-Securities Association of China (Penn-SAC) program for a number of years. He received the Best Elective Course Teaching Award in the Wharton Executive MBA Program and the Wharton Teaching Excellence Award for the 2017-2018 academic year.
Dr. Geczy’s current research focuses on various topics including multifactor models, wealth management, risk management, asset allocation, the performance of managed funds including hedge funds, venture capital and private equity as well as other alternatives, Impact Investing and ESG incorporation in funds and portfolios, and various aspects of equity lending and short-selling. His work has appeared in numerous books and scholarly journals including the Journal of Finance, Journal of Financial Economics, Journal of Portfolio Management, The Society for Industrial and Organizational Psychology and the Journal of Political Economy. In 2018, Dr. Geczy and co-authors won the Investment for Impact Prize of the Center for Responsible Business at the University of California, Berkeley’s Haas School of Business for their research paper “Contracts With (Social) Benefits: The Implementation of Impact Investing.”
He currently serves on Intel’s US Retirement Plans’ Investment Policy Committee. He has served on the Economic Advisory Board of NASDAQ and has been an editor of the Journal of Alternative Investments. He is currently Founding Editor of the Financial Planning Review, the academic journal of the CFP® Board Center for Financial Planning. He is also a founding board member and past Chairman of the Mid-Atlantic Hedge Fund Association and serves an Affiliated Faculty member of the Wharton Social Impact Initiative and formerly of the Wharton Sports Business Initiative. Dr. Geczy has also served as a Trustee and member of the Investment Committee of The Episcopal Academy.
His research has been reported in the Wall Street Journal, the New York Times, the Financial Times, Forbes, NPR, on CNBC’s “Squawk Box,” and in numerous other media.
Abstract: We construct optimal portfolios of mutual funds whose objectives include socially responsible investment (SRI). Comparing portfolios of these funds to those constructed from the broader fund universe reveals the cost of imposing the SRI constraint on investors seeking the highest Sharpe ratio. This SRI cost crucially depends on the investor’s views about asset pricing models and stock-picking skill by fund managers. To an investor who strongly believes in the CAPM and rules out managerial skill, that is, a market index investor, the cost of the SRI constraint is typically just a few basis points per month, measured in certainty-equivalent loss. To an investor who still disallows skill but instead believes to some degree in pricing models that associate higher returns with exposures to size, value, and momentum factors, the SRI constraint is much costlier, typically by at least 30 basis points per month. The SRI constraint imposes large costs on investors whose beliefs allow a substantial amount of fund-manager skill, that is, investors who heavily rely on individual funds’ track records to predict future performance. ( JEL G11, G12, C11) In 2005, when we released what ultimately proved to be the final version of this study, socially responsible investment (SRI) had already become a major presence on the investment landscape. In the years since, this approach, now often called “sustainable” investment, has grown even more rapidly and often encompasses a broad set of “ESG” (environmental, social, and governance) criteria. As evidence of the rapid growth, Morningstar (2020) notes, “one need look no further than the nearly fourfold increase in assets that flowed into sustainable funds in the United States in 2019.” Sustainable investing has also received increased attention in the academic literature, in subsequent studies too numerous to list. Some of the studies are especially related to ours in that they also examine mutual funds. In our study, mutual funds constitute an asset universe faced by an investor imposing an SRI/ESG constraint. A number of the subsequent studies use mutual funds to address other dimensions of sustainable investing. For example, Bollen (2007), Benson and Humphrey (2008), Renneboog, Ter Horst, and Zhang (2011), Bialkowski and Starks (2016) and Hartzmark and Sussman (2019) investigate determinants of mutual fund flows into sustainable funds versus other funds. Riedl and Smeets (2017) use survey and experimental data to explore investors’ preferences for sustainable funds. Madhavan et al. (2020) examine sustainable active equity mutual funds, relating factor loadings and residual returns to ESG characteristics. While we focus on mutual funds, our study also intends that the basic aspects of the SRI setting extend to other institutional investors. That intent is supported, for example, by the recent evidence of Bolton and Kacperczyk (forthcoming, 2020) providing broader perspectives on the SRI portfolio tilts of various types of institutional investors.One conclusion of our study is that an SRI/ESG constraint is especially binding for investors wishing to tilt toward value or small-cap funds. It seems reasonable to infer that such is still the case, though we have not updated our formal analysis. For example, Morningstar (2020) identifies, as of 2019, 99 sustainable U.S. equity funds categorized within its 3 × 3 style box that sorts along the dimensions of value/blend/growth and small/mid-cap/large. Of those 99 funds, only 8 are classified as value, versus 24 as growth and 67 as blend. Only 7 of the 99 are small-cap funds, versus 79 large-cap and 13 mid-cap. More generally, our 2005 study is early in noting meaningful differences in factor loadings between sustainable versus other funds, in both three- and four-factor models.An SRI/ESG constraint is also especially binding for investors who see much information in individual funds’ historical alphas. The basic reason we discuss in our study is seemingly still at work. That is, despite the rapid growth noted earlier, the number of sustainable funds is still well less than those in the total fund universe, so many of the highest track records appear among funds outside that subset. Not mentioned in our original study is that the case of an investor who sees much information in historical alpha confronts the argument of Berk and Green (2004): if fund flows rationally respond to historical alpha, an investor will not view historical alpha as being informative about future alpha. That argument relies on investors correctly assessing the degree of fund-level decreasing returns to scale. One might view an investor who sees historical alpha as informative about future alpha as also having beliefs that favor a lower degree of decreasing returns to scale, as compared to other investors. Moreover, the equilibrating effects of fund flows might interact with the nonpecuniary utility that SRI-conscious investors derive from their fund choices, as suggested by the evidence of Bollen (2007) that flows respond to returns differently for SRI funds versus conventional funds. In any event, when prior beliefs admit substantial information from historical alphas, Busse and Irvine (2006) find that Bayesian predictive alphas computed as in Pástor and Stambaugh (2002a, 2002b), as are the alphas in our study, do predict future performance.While not one we address, a question often asked is whether sustainable investments perform better or worse than other investments. A number of studies do pursue this question, obtaining a range of findings that include both higher and lower performance for sustainable investments. Pástor, Stambaugh, and Taylor (forthcoming) discuss the challenge in interpreting such findings’ implications about expected future performance. A wedge between ex ante and ex post performance of sustainable investments arises during any period that witnesses unanticipated shifts in either customers’ demands for sustainable products or investors’ demands for sustainable holdings.1 As those authors note, sorting out such effects is an important challenge for future research. Our study conducts its analysis under a variety of asset pricing models and prior beliefs. In each case, an investor conditions on funds’ past returns and thus takes account of any historical performance differences between the sustainable funds and other funds in our sample. We do not, however, include models in which expected asset returns depend on sustainability. In this respect, our study does not attempt to provide direct evidence about a potential relation between sustainability and expected investment performance.We are grateful to the Review of Asset Pricing Studies for the opportunity to publish our original study, which follows below with only the references updated to reflect subsequent publications. The study’s abstract is also unchanged from its original version.
Christopher Geczy, Jessica Jeffers, David Musto, Anne M. Tucker (2021), Contracts with (Social) Benefits: The Implementation of Impact Investing, Journal of Financial Economics. 10.1016/j.jfineco.2021.01.006
Abstract: We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts like governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals. We propose an explanatory framework in which this feature results from hidden differences between agents’ preferences over impact.
Christopher Geczy, John B. Guerard, Mikhail Samonov (2020), Warning: SRI Need Not Kill Your Sharpe and Information Ratios—Forecasting of Earnings and Efficient SRI and ESG Portfolios,. https://doi.org/10.3905/joi.2020.1.115
Abstract: Using an earnings forecasting model is useful and produces statistically significant outperformance in US stock selection. This study finds that the incorporation of environmental, social, and governance (ESG) criteria can potentially enhance stockholder returns, holding risk constant under reasonable assumptions. The novel approach here uses a normalization of ESG strengths and weaknesses ratings, applied in both robust simply-weighted and realistic optimized portfolio settings. The study confirms a now-classical no-cost result for the overall ESG criteria and—with Human rights and Corporate Governance criteria—shows that SRI and ESG information can enhance portfolio returns in certain implementations. Thus, SRI and ESG investors may not necessarily have to expect lower portfolio returns and Sharpe ratios under all circumstances.
Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2017), In Pursuit of Good & Gold: Data Observations of Employee Ownership & Impact Investment, Seattle University Law Review, 40.
Christopher Geczy (2016), The New Diversification: Open Your Eyes to Alternatives, The Journal of Portfolio Management, 40:5.
Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2015), Institutional Investing When Shareholders Are Not Supreme, Harvard Business Law Review , 5:1.
Christopher Geczy (2013), Financial Market Assumptions & Models for Pension Plans: A Technical Comment on the PIMS Model Assumptions for Asset Markets, incorporated in report of the Technical Review Panel for the Pension Insurance Modeling System (PIMS) (Olivia S. Mitchell, chair), Pension Benefit Guaranty Corporation.
Rich Evans, Christopher Geczy, David Musto, Adam V. Reed (2009), Failure is an Option: Impediments to Short Selling and Options Prices, Review of Financial Studies, Forthcoming.
Abstract: Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hard-to-borrow situations, it chooses not to borrow and instead fails to deliver stock to its buyers. Some of the value of failing passes through to option prices: when failing is cheaper than borrowing, the relation between borrowing costs and option prices is significantly weaker. The remaining value is profit to the market maker, and its ability to profit despite the usual competition between market makers appears to result from a cost advantage of larger market makers at failing.
Abstract: The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one share-one vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higher-spread and worse-performing firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.
This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., index-fund) and active (e.g., hedge-fund, long-short) strategies, mutual funds, performance evaluation, long-horizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking"). In addition to course prerequisites, STAT 1020 may be taken concurrently.
This course explores Impact Investing, a discipline that seeks to generate social benefits as well as financial returns. From tiny beginnings, the Impact Investment space has expanded and now commands significant attention from policymakers, wealthy and public-spirited individuals, academia and, not least, the world's largest asset managers and philanthropic foundations. Evangelists believe it may be the key to freeing the world from poverty. Skeptics think it will remain confined to the boutique. Regardless, Impact Investing is becoming a distinct career specialization for finance professionals despite the diverse skillset each must have and the uncertainty of the new field's growth. In addition to prerequisites, FNCE 2050 is recommended but not required.
Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.
(Formerly FNCE 720) This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., index-fund) and active (e.g., hedge-fund, long-short) strategies, mutual funds, performance evaluation, long-horizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").
This course explores Impact Investing, a discipline that seeks to generate social benefits as well as financial returns. From tiny beginnings, the Impact Investment space has expanded and now commands significant attention from policymakers, wealthy and public-spirited individuals, academia and, not least, the world's largest asset managers and philanthropic foundations. Evangelists believe it may be the key to freeing the world from poverty. Skeptics think it will remain confined to the boutique. Regardless, Impact Investing is becoming a distinct career specialization for finance professionals despite the diverse skillset each must have and the uncertainty of the new field's growth. In addition to prerequisites, FNCE 7050 is recommended but not required.
Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. Applications for FNCE 8990 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.
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