Working Papers

In Search of the True Greenium (with Markus Ibert, Theis Ingerslev Jensen and Lasse Heje Pedersen), March 2024

Abstract:

The greenium (the expected return of green securities relative to brown) is a central impact measure for ESG investors. Replicating the literature’s wide range of greenium estimates based on realized returns, we find that these are not robust to changing the greenness measure or time period. Instead, we propose a robust green score combined with forward-looking expected returns, yielding a more precisely estimated annual equity greenium of -25 basis points per standard deviation increase in greenness. The greenium is more negative in greener countries and over time. Finally, we provide greeniums for corporate bonds, weighted-average costs of capital, and sovereign bonds.

Carbon Home Bias (with Patrick Bolton and Marcin Kacperczyk), February 2024

Abstract:

Do institutional investors favor domestic over foreign stocks of companies with high carbon emissions? We undertake a global analysis of institutional investor portfolios and find widespread underweighting of companies with higher carbon emissions. This underweighting is largely driven by underinvestment in foreign companies with high carbon emissions both at the intensive (tilting) and extensive (exclusion) margins. Similar domestic firms are overweighted but by a smaller magnitude. Further, the divestment of foreign polluters has increased since 2015. These results reveal the presence of a carbon home bias for domestic companies with high carbon emissions.

Asset-Pricing Evidence of Regulatory Capture (solo-authored), October 2022

Abstract:

I test theories of regulation using comprehensive datasets on regulatory changes, equity returns, and firm fundamentals. I find that firms in industries subject to more regulation earn significantly higher returns than firms in deregulated industries. A long-short regulatory portfolio earns 9.8% annual alpha (t−statistic of 4.4). This return effect coincides with significant increases in cash flow generation for regulated versus deregulated industries. Regulated industries have lower net entry of new establishments, and I find evidence that lobbying firms have better return outcomes following regulatory changes. Overall, these findings are consistent with regulatory capture and inconsistent with the public interest theory.