Luke Taylor

Luke Taylor
  • Associate Professor of Finance
  • Co-Director, Rodney L. White Center for Financial Research

Contact Information

  • office Address:

    2321 Steinberg-Dietrich Hall
    3620 Locust Walk
    Philadelphia, PA 19104

Research Interests: corporate finance, corporate governance, entrepreneurship, financial fragility and crises, learning, portfolio management

Links: CV, Personal Website

Overview

Education

PhD and MBA, University of Chicago Graduate School of Business, 2009; AB, Princeton University, 2001

Academic Positions Held

Wharton: 2008-present.

Other Positions

Business Analyst, McKinsey and Company, 2001-2003

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Research

  • Lubos Pastor, Robert F. Stambaugh, Luke Taylor (Working), Dissecting Green Returns.

    Abstract: Green assets delivered high returns in recent years.  This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns.  German green bonds outperformed their higher-yielding non-green twins as the “greenium” widened, and U.S. green stocks outperformed brown as climate concerns strengthened.  To show the latter, we construct a theoretically motivated green factor—a return spread between environmentally friendly and unfriendly stocks—and find that its positive performance disappears without climate-concern shocks.    The factor lags those shocks, curiously, by about a month.   A theory-driven two-factor model featuring the green factor explains much of the recent underperformance of value stocks.

  • Lubos Pastor, Robert F. Stambaugh, Luke Taylor (2021), Sustainable Investing in Equilibrium, Journal of Financial Economics, forthcoming.

    Abstract: We model investing that considers environmental, social, and governance (ESG) criteria. In equilibrium, green assets have low expected returns because investors enjoy holding them and because green assets hedge climate risk. Green assets nevertheless outperform when positive shocks hit the ESG factor, which captures shifts in customers' tastes for green products and investors' tastes for green holdings. The ESG factor and the market portfolio price assets in a two-factor model. The ESG investment industry is largest when investors' ESG preferences differ most. Sustainable investing produces positive social impact by making firms greener and by shifting real investment toward green firms.

  • Lubos Pastor, Robert F. Stambaugh, Luke Taylor (2020), Fund Tradeoffs, Journal of Financial Economics, 138, pp. 614-634.

    Abstract: We study tradeoffs among active mutual funds' characteristics. In both our equilibrium model and the data, funds with larger size, lower expense ratio, and higher turnover hold more-liquid portfolios. Portfolio liquidity, a concept introduced here, depends not only on the liquidity of the portfolio's holdings but also on the portfolio's diversification. We also confirm other model-predicted tradeoffs: Larger funds are cheaper. Larger and cheaper funds are less active, based on our new measure of activeness. Better-diversified funds hold less-liquid stocks; they are also larger, cheaper, and trade more. These tradeoffs provide novel evidence of diseconomies of scale in active management.

  • Winston Wei Dou, Luke Taylor, Wei Wang, Wenyu Wang (Working), Dissecting Bankruptcy Frictions.

  • Luke Taylor, Di Li, Wenyu Wang (2018), Inefficiencies and Externalities from Opportunistic Acquirers, Journal of Financial Economics.

  • Ryan Heath Peters and Luke Taylor (Forthcoming), Intangible Capital and the Investment-q Relation.

    Abstract: Including intangible capital significantly changes how we evaluate theories of investment. We show that including intangible capital in measures of investment and Tobin's q produces a stronger investment-q relation, especially in macroeconomic data and in firms that use more intangibles. These results lend support to the classic q theory of investment, and they call for the inclusion of intangible capital in proxies for firms' investment opportunities. However, including intangible capital also makes the investment-cash flow relation almost an order of magnitude stronger, which supports newer investment theories. The classic q theory performs better in settings with more intangible capital.

  • Lubos Pastor, Robert F. Stambaugh, Luke Taylor (2015), Scale and Skill in Active Management, Journal of Financial Economics, 116, pp. 23-45.

    Abstract: We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level. As the size of the active mutual fund industry increases, a fund?s ability to outperform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, though estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund?s lifetime. This result can also be explained by industry-level decreasing returns to scale.

  • Luke Taylor, Enrique Schroth, Gustavo Suarez (2014), Dynamic Debt Runs and Financial Fragility: Evidence from the 2007 ABCP Crisis, Journal of Financial Economics.

  • Luke Taylor (2013), CEO Wage Dynamics: Estimates from a Learning Model, Journal of Financial Economics.

  • Luke Taylor (2010), Why Are CEOs Rarely Fired? Evidence from Structural Estimation, Journal of Finance.

Teaching

Past Courses

  • FNCE250 - VENT CAP & FNCE INNOVAT

    This course covers the finance of technological innovation, with a focus on thevaluation tools useful in the venture capital industry. These tools include the "venture capital method," comparables analysis, discounted cash flow analysis, contingent-claims analysis. The primary audience for this course is finance majors interested in careers in venture capital or in R&D-intensive companies in health care or information technology.

  • FNCE750 - VENT CAP & FNCE INNOVAT

    This course covers the finance of technological innovation, with a focus on the valuation tools useful in the venture capital industry. These tools include the "venture capital method," comparables analysis, discounted cash flow analysis, contingent-claims analysis. The primary audience for this course is finance majors interested in careers in venture capital or in R&D-intensive companies in health care or information technology.

  • FNCE899 - INDEPENDENT STUDY

    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 899 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.

Activity

Latest Research

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In the News

Why Green Assets May Not Continue to Outperform

Investors lured by the strong performance of ESG funds may face future disappointment, warns a new research paper co-authored by Wharton’s Luke Taylor.

Knowledge @ Wharton - 6/29/2021
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Wharton Stories

Chanelle with long black hair and wearing a black shirt standing outside a brick campus buildingHow This MBA Explored Blockchain to Drive Funds to Entrepreneurial Women of Color

I knew about the statistics. Today, roughly 2% of female founders receive venture capital (VC) funding. Women of color (WOC) receive, on average, around 1% of total VC funding each year. Before joining the Wharton Social Impact Initiative’s WISE project around gender lens investing, I thought this problem could be…

Wharton Stories - 02/04/2019
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