COMPOSICIONALIDAD

We collect data from various sources. We obtain market excess return (MKTRF), the size factor (SMB), the value factor (HML), the momentum factor (UMD), the short term reversal (STR) and long-term reversal (LTR) factors, and value-weighted returns of the 48 Fama and French (1997) industry portfolios at daily and monthly frequencies from Kenneth French’s website.30 We obtain the liquidity factor (LIQ) from Lubos Pastor’s website,31 the Lettau and Ludvigson (2001) cay measure from Sydney Ludvigson’s website, U.S. business cycle data from National Bureau of Economic Research (NBER), and Business Wire CSR newsletters from Factiva.

We obtain daily and monthly stock prices, stock returns, and shares outstanding from Center for Research on Security Prices (CRSP). We focus on all common stocks (i.e., share code equals to 10 or 11) in the CRSP universe and obtain relevant accounting information from the CRSP-Compustat Merged dataset. We use the historical Standard Industry Classification (SIC) codes from Compustat to assign all stocks into the 48 Fama and French (1997) industries. If the historical SIC code is not available, we use the SIC code from CRSP. We calculate book-to-market ratio for each firm using data from Compustat. Specifically, book-to-market ratio is calculated as the ratio of year-end stockholders’ equity plus deferred taxes and investment tax credit minus preferred stocks to year-end market equity, as in Daniel and Titman (1997).

30_{Available at: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.}

31 _{The liquidity factor is the main variable in Pastor and Stambaugh (2003) and is available at:}

We obtain the Daniel, Grinblatt, Titman, and Wermers (DGTW, 1997) characteristic- adjustment stock assignments and benchmark portfolio returns from Russ Wermers’ website. Since the benchmark returns are available until 2011, we use the Daniel, Grinblatt, Titman, and Wermes (1997) method to generate DGTW returns for the 2012 to 2013 period.32_{We estimate the DGTW return for each of the 48 Fama and French industry}

portfolio by value weighting stock-level DGTW returns.33

To ensure our return-based social sensitivity measure captures industry- or firm-level social attributes, we obtain stock-level ratings of corporate social responsibility from KLD. This database covers the Russell 3000 stocks during the 2005 to 2013 period and is widely used in the CSR literature. We focus on all the seven dimensions of corporate goodness rated by KLD: Community, Diversity, Corporate Governance, Employee Relations, Environment, Human Rights, and Product. KLD reports for each firm, its number of strengths and concerns across all these seven dimensions. Since the number of strength and concern indicators for most dimensions varies considerably each year, we use the Deng, Kang, and Low (2013) method to calculate stock-level KLD score so that it is comparable across years and dimensions. Specifically, we divide the aggregated strength (concern) of each stock by the total number of strengths (concerns) in each year to construct adjusted strength (concern). KLD score is the difference between adjusted strength and adjusted concern. Further, as KLD ratings are updated annually, we use the equal-weighted lagged KLD scores of industry firms in the Russell 3000 universe as proxies for the scores of the corresponding 48 Fama and French industry portfolios.34

32_{We verify the accuracy of our generated DGTW returns over the 2005 to 2011 period using the data from}

Russ Wermers’ web site: http://www.smith.umd.edu/faculty/rwermers/ftpsite/Dgtw/coverpage.htm.

33_{Following Daniel, Grinblatt, Titman, and Wermers (1997) DGTW returns are calculated as follows: First,}

we rank all stocks listed on NYSE, AMEX, or Nasdaq, at the end of June, by their market capitalization and form quintile portfolios using NYSE quintile size breakpoints. We then further divide each quintile portfolio into book-to-market quintiles based on their most recently available book-to-market ratio as of the end of the December immediately prior to the ranking year. Finally, each of the resulting 25 portfolios are further subdivided into quintiles based on the return in the past 12 months through the end of May of the ranking year. This procedure forms 125 portfolios with each having a distinct combination of size, book-to-market, and momentum characteristics. We reconstruct the 125 portfolios at the end of each June. We calculate value-weighted returns for each of the 125 portfolios. DGTW adjusted return is defined as the return difference between the stock and the corresponding portfolio of which that stock is a member.

34_{We require all stocks to have valid adjusted strength and concern scores in all the seven dimensions to}

ensure comparability. This filter does not affect the KLD coverage during the 2005 – 2012 period. However, due to the significant criteria changes, only 300 firms have relevant data in 2013. Therefore, our sample for KLD scores ends in 2012.

To examine the institutional trading, we obtain transaction-level data of institutional investors for the 2005 to 2010 period from ANcerno Ltd. This dataset reports execution price, execution volume, side (i.e., buy or sell), and CUSIP for each transaction. As suggested by Puckett and Yan (2011), ANcerno institutions are larger than the typical institutions in the 13F universe and account for about 10% of all institutional trading volume. In addition, characteristics of stocks held and traded by ANcerno institutions are similar to those held by 13F institutions. We obtain institutional ownership data provided by Ferreira and Matos (2008) from FactSet. We measure institutional ownership of a firm using its average quarterly total institutional ownership in the previous year.