Aesthetic Investments

How should investors think about the risks and returns of music royalties, which have become transparent in the streaming era, as an asset class? In their September 2025 paper entitled “Music as an Asset Class”, Sasha Stoikov, Aadityaa Singla, Umu Cetin and Luis Alonso Cendra Villalobos test three discounted cash flow (DCF) models on transactions from the Royalty Exchange platform. They consider transactions for either limited (10 years) or Life of Rights (LOR) ownership terms, the latter conveying ownership until lapse of copyright. They then use the best DCF model to backtest performance of music royalties net of transaction costs. Using prices and cash flows for 1,295 music ownership transactions debiting $500 buyer fees and 8% seller commissions since the beginning of 2017, they find that: Keep Reading

Do exchange-traded funds selecting stocks based on environmental, social, and governance characteristics (ESG ETF) typically offer attractive performance? To investigate, we compare performance statistics of eight ESG ETFs, all currently available, to those of simple and liquid benchmark ETFs, as follows:

1. iShares MSCI USA ESG Select ETF (SUSA), with SPDR S&P 500 ETF Trust (SPY) as a benchmark.
2. iShares MSCI KLD 400 Social ETF (DSI), with SPY as a benchmark.
3. iShares ESG MSCI EM ETF (ESGE), with iShares MSCI Emerging Markets ETF (EEM) as a benchmark.
4. iShares ESG Aware MSCI EAFE ETF (ESGD), with iShares MSCI EAFE ETF (EFA) as a benchmark
5. iShares ESG MSCI USA ETF (ESGU), with SPY as a benchmark.
6. Nuveen ESG Small-Cap ETF (NUSC), with iShares Russell 2000 ETF (IWM) as a benchmark.
7. Vanguard ESG U.S. Stock ETF (ESGV), with SPY as a benchmark.
8. Vanguard ESG International Stock ETF (VSGX), with Vanguard FTSE All-World ex-US Index Fund ETF (VEU) as a benchmark.

We focus on average return, standard deviation of returns, reward/risk (average return divided by standard deviation of returns), compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly dividend-adjusted returns for all specified ETFs since inceptions and for all benchmarks over matched sample periods through June 2025, we find that: Keep Reading

How can investors estimate the value of musical assets as an alternative investment? In their January 2025 paper entitled “Pricing Music Royalty Assets”, Luis Villalobos, Yuao Peng, Ananya Mohapatra, Caroline He, Tiffany Filawo, Sasha Stoikov and Umu Cetin develop a royalty decay model to predict revenue streams for music assets. They then apply a discounted cashflow model to estimate the fair multiplier of a music asset in terms of the age of its songs. Using quarterly and annual royalty data from Crescendo Royalty and deals data from Royalty Exchange for 3000 songs at least two years old by more than 300 unique artists, they find that:

Keep Reading

How much do investors gain or sacrifice by focusing their portfolios on “sustainable” (green) stocks? In their March 2024 paper entitled “In Search of the True Greenium”, Marc Eskildsen, Markus Ibert, Theis Jensen and Lasse Pedersen broadly examine the green-minus-brown premium (the greenium). Specifically, they:

• Replicate and extend past studies to estimate the U.S. equity greenium in 230 ways based on realized returns, encompassing: 23 firm greenness metrics; estimates with or without industry-neutrality; and, five ways of adjusting for risk.
• Generate estimates of the greenium in each of 48 countries also using realized returns, each firm greenness metric and each way to adjust for risk.
• Construct a robust firm greenness score by averaging key greenness metrics from leading data providers and estimate the greenium using expected (instead of realized) returns based on each firm’s implied cost of capital. For robustness, they consider other ways to model expected returns.

They also estimate the greenium for U.S. corporate bonds. Using the specified data as available during August 2009 through December 2022, they find that: Keep Reading

Prior research indicates that stocks of firms with high direct and indirect carbon dioxide emissions tend to beat the market (offer a carbon premium). Does high-emissions stock outperformance derive from surprisingly high earnings? In their September 2023 paper entitled “Does the Carbon Premium Reflect Risk or Mispricing?”, Yigit Atilgan, Ozgur Demirtas, Alex Edmans and Doruk Gunaydin examine relationships between firm carbon dioxide emissions and future earnings surprises. They consider three levels of emissions from S&P Global Trucost: Scope 1 directly from firm operations; Scope 2 from firm consumption of purchased heat/electricity/steam; and, Scope 3 from upstream supply chain operations. They consider level of emissions (natural logarithm of emissions measured in tons) and annual change in level of emissions, with the latter winsorized at the 2.5% level. They consider several measures of earnings surprises, all comparing analyst forecasts to actual earnings. They calculate market reactions to earnings announcements as 3-day cumulative abnormal returns (CAR) relative to a 3-factor (market, size, book-to-market) model the day before through the day after earnings announcements. Using carbon dioxide emissions data, stock returns, market valuations, book values and analyst earnings forecasts for a broad sample of U.S. stocks during 2002 through 2021, they find that: Keep Reading

Do companies that make the strongest commitments to diversity, equity and inclusion (DEI) generate attractive stock returns? In their April 2023 paper entitled “Diversity, Equity, and Inclusion”, Alex Edmans, Caroline Flammer and Simon Glossner relate DEI to future firm performance and stock returns. They measure firm DEI based on 250 confidential employee responses to 13 of 58 questions on a Trust Index survey that comprises two thirds of the score for each firm applying to be one of the Best Companies to Work For in America. Using the specified annual survey responses, associated firm accounting data and monthly stock returns for all companies applying to be a best company during 2006 through 2021, they find that: Keep Reading

Do good firm environmental, social and governance (ESG) ratings signal attractive stock returns? If so, what is the best way to exploit the signals? In their February 2023 paper entitled “Quantifying the Returns of ESG Investing: An Empirical Analysis with Six ESG Metrics”, Florian Berg, Andrew Lo, Roberto Rigobon, Manish Singh and Ruixun Zhang test performance of long-short ESG portfolios of U.S., European and Japanese stocks based on proprietary ESG scores from six major rating sources. They consider ESG scores from individual sources and apply several statistical and voting-based methods to aggregate ESG ratings across sources, including: simple average, Mahalanobis distance, principal component analysis, average voting and singular transferable voting. They consider equal-weighted and ESG score-weighted portfolios. They consider different percentile thresholds for long and short holdings. They assess ESG portfolio alpha with respect to widely used 1-factor (market), 3-factor (plus size and value) and 5-factor (plus investment and profitability) models of stock returns. They further test long-short portfolios from aggregations of E, S and G scores separately across sources. Using proprietary ESG ratings, monthly returns of associated stocks and monthly factor model returns during 2014 through 2020, they find that:

Keep Reading

Are non-fungible tokens (NFT) viable and attractive as an investment class? In their December 2022 paper entitled “Non-Fungible Tokens (NFTs) as an Investment Class”, Mieszko Mazur and Efstathios Polyzos provide an overview of NFT investing. First, they summarize NFT primary and secondary markets, exchanges, aggregators, borrowing and lending,  and staking. Then, they analyze returns for leading NFT collections overall and separately during bull and bear markets. Using data as available from OpenSea excluding those in the bottom 1% of prices on nearly two million NFT transactions across leading NFT collections and ether/U.S. dollar exchange rates through June 2022, they find that:

Keep Reading

Is growing interest in environmental, social, and governance (ESG) issues among investors and asset managers materially affecting stock selection decisions and associated returns? In the September 2022 version of their paper entitled “The Economic Impact of ESG Ratings”, Florian Berg, Florian Heeb and Julian Kölbel measure impacts of ESG rating changes on associated mutual fund holdings and stock returns. They focus on average abnormal holdings changes and average cumulative abnormal returns from: (1) 12 months before rating change up to the change, and (2) from the ratings change through 24 months after the change. Abnormal returns control for firm leverage, size, book-to-market ratio and profitability, and for stock return beta and momentum. Using quarterly fundamentals and monthly stock returns and ESG-dedicated mutual fund holdings for 3,665 firms with a total of 2,545  MSCI ESG rating upgrades and 2,133 downgrades during February 2013 through September 2020, they find that:

Keep Reading

Do environmental, social, and corporate governance (ESG) ratings aggregated across individual firms predict overall stock market returns? In the July 2022 version of their paper entitled “ESG and the Market Return”, Ran Chang, Liya Chu, Bohui Zhang, Guofu Zhou and Jun Tu investigate whether ESG ratings in aggregate predict overall stock market returns. Specifically, they each month:

• Combine 38 firm-level ESG subcategory ratings via equal weighting to calculate 38 market-level ESG measures.
• Apply machine learning tools to these market-level measures to suppress noise and redundancies and generate 14 market-level predictors.
• Aggregate the 14 predictors into a market-level composite ESG index, and similarly develop market-level environmental, social and governance ESG subindexes.
• Use full-sample (in-sample) regression to relate ESG index/subindexes to next-month and next-year stock market excess return (value-weighted stock market return minus U.S. Treasury bill yield).
• Use the first seven years of the sample as the initial training period and the rest of the data as an out-of-sample forecast evaluation period.

Using monthly firm ESG data from Morningstar Sustainalytics and stock market excess returns during August 2009 (ESG measurement inception) through September 2019, they find that: Keep Reading