Doina Chichernea
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Doina Chichernea is the program director of the MS in Applied Quantitative Finance and an associate professor in the Reiman School of Finance at the Daniels College of Business.
What do you study?
My area is empirical asset pricing. I use empirical tests and data analysis (rather than pure theory) to explain price movements. Historically, theoretical financial models based on risk have not always been supported by the data. I like to find these “anomalies” and provide rational explanations for them. My research has examined various asset classes (equity, fixed income, real estate, etc.), but always revolved around the same motivation: the idea of providing rational explanations for the disconnect between data and theory.
What have you been working on recently?
My most recent interest was in the question of if and how ESG (environmental, social and governance related information) data influences returns. This kind of data is extremely noisy, and the root lies in the huge discrepancies in the way companies report this information. ESG scores are notoriously unreliable, and various sources come up with very different rankings, which leads researchers to conclusions that are confusing at best. Instead of using information reported by companies or analysts, we started looking into external sources of data. Specifically, we look at how negative ESG-related news reported in the media (i.e. ESG controversies) influences returns. Specifically, we investigate the impact that media coverage of negative ESG events has on a firm’s cost of debt, and we show that bondholders indeed demand a higher credit spread for bonds issued by firms with higher ESG controversies.
In other words, debt market participants perceive ESG controversies as very risky, mostly because they predict future increases in the firm’s future asymmetric information and its default risk. In addition, we also show that ESG news controversies are more informative, less noisy and more value relevant than ESG ratings themselves. This provides a very interesting avenue for future research, since “ESG controversies” is a metric external to the firm, and thus avoids most of the criticism and noise that regular ESG ratings are subjected to.
How do you integrate that work into the classroom?
Inconsistencies in the way companies report ESG-related data seem to be the crux of the problem in this area. This is a problem that is just as relevant in finance and in accounting, so my husband (Anthony Holder, professor of accountancy at Daniels) and I decided to set up a class around the topic of ESG reporting. We wanted to give students a broader perspective, so we set it up as an international travel class (we picked Bucharest, Romania, as a destination, since I grew up there). The overall objective of the class was to compare and contrast how reporting regulations and guidance around ESG topics are evolving in the U.S. versus the EU. This could not be more topical, given how the SEC has been recently gearing up to pass regulation that would make it mandatory for firms to report on ESG topics in a (more) standardized manner. Although the EU is perceived to be several steps ahead in terms of this kind of regulation, discussing the topic with some of the big four accounting firms from both Denver and Romania made it clear that the rules in the EU are still very much in a developmental stage. It turned out that bringing our research topic into the classroom was not only interesting for us, but also a fantastic learning experience for our students. It was very cool to merge current events and my own research with creating a unique student experience. It’s something that we hope to put together every other year.
How do you see your work impacting the world?
Generally, financial research can get to be very technical, and I feel that it is important that we present our papers as often as we can and that we try to interpret our results from a practitioner’s perspective. Moreover, it is important that our work permeates into our classrooms, and that it translates into information transfer to our students. Although finance can get very quant-like very fast, I tell my students that numbers do not matter unless they tell a story. Training students to have perspective and see the big picture can have an important effect. I think that it is very easy to underestimate the impact that we have as educators on future generations. Through the values that we pass on to our students we can impact the way they see the world, and that is a privilege that we should not take lightly.