Research
Research
Valuing Local Climate Policy: Evidence from Firm Behavior and Financial Markets
This paper examines the efficacy of state-level emissions regulations and their local economic effects. Using newly collected data, I find that regulation reduces employment, output, profitability and equity returns in affected industries, but also lowers emissions and emissions intensity, while increasing R&D and capital investment. To interpret these effects, I develop a spatial equilibrium model in which firms choose locations and emissions in response to local carbon taxes. I infer the implicit tax increase corresponding to each regulation from the stock-market reactions of exposed firms and use these values to estimate the model’s structural parameters. I use the model to quantify the costs of individual regulations and compare them to the social benefits of reduced emissions. I find that policies targeting utilities and waste management are beneficial, unlike those focused on fossil fuel extraction and manufacturing. On average, endogenous technology switching contributes an additional 20 percent of emissions abatement, whereas relocation undoes about 10 percent of the reductions achieved within the regulated state.
Regulating ESG Disclosure, joint with Marina Emiris and François Koulischer
Yiran Fan Memorial Fellowship for the best 3rd year paper
We use new data on the ownership of mutual funds in Europe to estimate how investors respond to regulations on the disclosure of Environmental, Social and Governance (ESG) performance. We find that the introduction of ESG disclosure rules for mutual funds led to strong flows into funds categorized as green. We show that investor rebalancing takes place through two channels: an uncertainty channel where investors value the lower uncertainty, and a greenness channel where funds respond to disclosure rules by increasing their greenness to attract flows. We find empirical support for both channels: green funds for which investors had little information before the regulation experience the strongest flows, and green funds that had a low ESG rating before the regulation decrease their emissions most under the new rules.
Asset Pricing Implications of Firm-Level Exposure to Climate Risk
I use the text of 10-K filings to measure firm-level exposure to physical and transition risks associated with climate change and explore the asset pricing implications. I find that both physical and transition risks are associated with lower monthly returns. I also study the interaction between climate risk and shocks to climate concerns in the media and find that physical and transition risks are both associated with underperformance in months following upward shocks to climate concerns. These effects are not driven purely by variation across industries, highlighting the importance of considering climate risk at the firm level.
Fed Implied Market Prices and Risk Premia, joint with Charles W. Calomiris, Harry Mamaysky and Cristina Tessari
We introduce FDIF, a measure of Fed communication surprise based on the text of FOMC statements. FDIF measures the difference between text-implied and actual values of key market variables. Positive FDIF of countercyclical variables (e.g., credit spreads) is associated with negative macroeconomic forecast revisions; the opposite holds for procyclical variables. Industries that hedge bad FDIF news earn low returns on FOMC announcement days, but high returns on non-FOMC days. The opposite holds for FDIF-exposed industries, and the return differences are large. Controlling for FDIF exposure, rate-based policy surprise measures are not priced in the cross-section of industry returns.