Working papers

We propose a novel corporate social responsibility (CSR) index that captures various aspects of an insurer's internal and external CSR activities. We first show that insurers worldwide have significantly increased their CSR activities with the average index value almost doubling between 2006 and 2015. CSR activities are particularly pronounced at large firms, composite insurers, and insurance companies in Europe. We find that insurers' exposure to market risk in previous times significantly drives future CSR engagement. Finally, we provide empirical evidence for a causal and decreasing effect of an insurer's CSR on its tail risk as well as its short- and medium-term exposure to systemic risk.

Journal of Financial and Quantitative Analysis, accepted.
We use the EBA capital exercise of 2011 as a quasi-natural experiment to investigate how capital requirements affect various measures of bank solvency risk. We show that, while regulatory measures of solvency improve, non-regulatory measures indicate a deterioration in bank solvency in response to higher capital requirements. The decline in bank solvency is driven by a permanent reduction in banks' market value of equity. This finding is consistent with a reduction in bank profitability, rather than a repricing of bank equity due to a reduction of implicit and explicit too-big-too-fail guarantees. We then discuss alternative policies to improve bank solvency.

We study the effects of innovations by banks on local deposit inflows and credit supply. To identify the causal effect of bank innovations on deposits and lending, we exploit two distinct instrument variables to explain banks’ patent approvals: the geographic heterogeneity in human capital available to bank headquarters, as well as the leniency of patent examiners. Banks that innovate experience deposit inflows, increase their local market power, and expand aggregate local lending without impairing the quality of their loan portfolio. Finally, we show that the innovation-induced credit supply shock spurs local economic growth and employment.

Cross-Section of Option Returns And The Volatility Risk Premium, with Simon Fritzsch and
Felix Irresberger
This paper presents a robust new finding that delta-hedged equity option returns include a volatility risk premium. To separate volatility risk premia from confounding effects, we estimate conditional quantile curves of implied volatilities using machine learning. We find that a zero-cost trading strategy that is long (short) in the portfolio with low (high) implied volatility conditional on the options' moneyness and realized volatility produces an economically and statistically significant average monthly return. Using conditional quantile curves not only helps in distinguishing volatility risk premia from other effects, most notably realized volatility, it also leads to returns that are higher than those reported in previous work on similar volatility strategies.