Today’s episode is an exhilarating journey into the captivating realms of finance and human behaviour with Professor Samuel Hartzmark, who takes centre stage to explore the complex intersection of asset pricing and behavioural finance. Professor Hartzmark’s career and academic journey are nothing short of inspiring. With a double major in mathematics and economics, a prestigious MBA from the University of Chicago Booth School of Business, and a Ph.D. from the University of Southern California's Marshall School of Business, he has paved a remarkable path through the world of academia. Our conversation takes a deep dive into his groundbreaking research, where he dissects complex financial topics with astonishing clarity. We delve into some of his most-cited papers, including those on dividends and sustainable investing, which consistently reveal counterintuitive conclusions that challenge conventional wisdom. We unpack price-only index returns, dividend juicing, price-only data, the value of sustainability rankings, and the power of capital to make the world a better place. And don't miss our exploration of multi-factor asset pricing, where Samuel’s unique perspective sheds new light on these models in the context of human behaviour. This episode promises an enlightening and engaging conversation that investors and finance enthusiasts alike won't want to miss! Timestamps: 0:00:00 Intro 0:04:12 How Morningstar’s Sustainability Rating system works 0:08:24 How important to flows the Globe Ratings were relative to more detailed information 0:11:06 What motivated investors to allocate toward funds with higher Globe Ratings 0:18:28 What Sam's findings tell us about what mutual fund investors care about 0:23:30 Sam defines “impact elasticity” in his research 0:26:36 How the impact elasticities of brown and green firms differ empirically 0:30:35 How effective divestment is at incentivizing brown firms to turn green 0:33:22 Where investors who want to have a positive impact on global sustainability should be allocating their capital 0:38:09 How investors treat price returns and dividends differently 0:40:54 What causes people to believe that dividends are special 0:45:15 Sam clarifies if dividends are a safe hedge against uncertain fluctuations in price 0:46:38 How Victor and James forecast volatility for determining the optimal risky share 0:51:42 When the demand for dividends is highest 0:55:44 How mutual funds exploit the preference for dividends 1:01:49 Sam's final words of wisdom on dividends 1:05:36 Why price indexes are so commonly used as a reference 1:11:58 How the prevalence of price-only index data affects investors’ return expectations 1:15:36 The textbook theoretical explanation for why some assets have higher expected returns than others 1:21:46 What Sam's survey results tell us about asset pricing 1:24:19 What the implications for people pursuing higher expected returns through factor investing are 1:31:07 Sam defines success in his life Links From Today’s Episode: Professor Samuel Hartzmark — https://www.samhartzmark.com/ Professor Samuel Hartzmark Email — samuel.hartzmark@bc.edu Professor Samuel Hartzmark on X — https://twitter.com/SamHartzmark Professor Samuel Hartzmark on LinkedIn — https://www.linkedin.com/in/sam-hartzmark- b21bb127/ Professor Samuel Hartzmark on Google Scholar — https://scholar.google.com/citations Boston College — https://www.bc.edu/ Morningstar — https://www.morningstar.com/ Sustainalytics — https://www.sustainalytics.com/ Episode 192: Professor Alex Edmans — https://rationalreminder.ca/podcast/192 ‘Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms’ — https://dx.doi.org/10.2139/ssrn.4359282 ‘Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows’ — https://dx.doi.org/10.2139/ssrn.3016092 Travelers Insurance — https://www.travelers.com/ ‘Reconsidering Returns’ — https://dx.doi.org/10.2139/ssrn.3039507 ‘A New Test Of Risk Factor Relevance’ — https://dx.doi.org/10.2139/ssrn.3487624 Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder- podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://twitter.com/RationalRemind Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/ Cameron on X — https://twitter.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/