Research

The International Monetary and Financial System, Annual Review of Economics, August 2019, with Pierre-Olivier Gourinchas and Hélène Rey

Asset Prices, Global Portfolios, and the International Financial System, R&R at the Journal of Finance, 2023

SSRN (Latest) JMP (Nov 2020)

I characterize the global solution to the international portfolio problem in a general setup, a long-standing open issue in international finance. The framework replicates a number of stylized facts about the structure and dynamics of the international financial system. In this economy, a Global Financial Cycle in risk premia emerges naturally, and the model can rationalize the Reserve Currency Paradox. The empirical patterns of the wealth share and relative GDP of the United States support the main underlying mechanisms. Empirically, the level and dynamics of portfolios, as well as unconditional and conditional asset pricing tests, are consistent with theoretical predictions.

When Green Investors Are Green Consumers, with O. David Zerbib, 2024

SSRN

We introduce investors with preferences for green assets to a general equilibrium setting in which they also prefer consuming green goods. Their preference for green goods induces consumption premia on expected returns, which counterbalance the green premium stemming from their preferences for green assets. Because they provide a hedge when green goods become expensive, brown assets command lower consumption premia, while green investors allocate a larger share of their portfolios towards them. Empirically, the green-minus-brown consumption premia differential reached 30-40 basis points annually, and contributes to explaining the limited impact of green investing on the cost of capital of polluting firms.

Green Intermediary Asset Pricing, 2024

SSRN

Can environmentally-minded investors impact the cost of capital of green firms even when they invest through financial intermediaries? To answer this and related questions, I build an equilibrium intermediary asset pricing model with three investors, two risky assets, and a riskless bond. Specifically, two heterogeneous retail investors invest via a financial intermediary who decides on the portfolio allocation that she offers between a green and a brown equity. Both retail investors and the financial intermediary can tilt towards the green asset, beyond pure financial considerations. Perhaps surprisingly, the green retail investor can have significant impact on the pricing of green assets, even when she invests via an intermediary who does not tilt: a sizable green premium --that is, a lower cost of capital-- can emerge on the equity of the green firm. This good news comes with important qualifications, however: the green retail investor has to take large leveraged positions in the portfolio offered by the intermediary, her strategy must be inherently state-dependent, and economic conditions or the specification of preferences can overturn or limit the result. When the financial intermediary decides (or is made) to tilt instead, the impact on the green premium is substantially larger, although it is largest when preference are aligned with retail investors. I also study what happens when the green retail investor does not know the weights in the portfolio offered by the intermediary, the potential impact of greenwashing, and the effect of portfolio constraints. Taken together, these findings highlight the central role that financial intermediaries can play in channeling financing (or not) towards the green transition.

Two Investors, Two Trees, Two Goods ("222"), 2022

SSRN

I characterize the global solution to the portfolio problem of two heterogeneous investors with general preferences, in a two-tree, two-good environment. Investors have recursive preferences and a bias in consumption towards a preferred good. The framework highlights the role of the allocation of wealth across investors for portfolios, asset prices, and risk sharing, an aspect that had received little emphasis in such a setting. The influence of the allocation of wealth grows especially as markets become imperfectly integrated, and as investor heterogeneity rises -- be it through a larger bias in consumption, the introduction of labor income, or asymmetries in preferences -- to the point where it can match or surpass the impact of fundamentals. The framework lends itself to several applications and extensions, e.g. in international or environmental contexts.

Projection Methods via Neural Networks for Continuous-Time Models, 2022

SSRN

I extend traditional projection methods by using neural networks as a function approximator to solve continuous-time models. The method is well-suited for high-dimensional settings such as those that arise in the presence of many assets, and can capture the strong non-linearities that occur for instance when agents face constraints. It is designed to accommodate multiple unknown functions, e.g. multiple value functions, so that it is set to tackle economies with several agents and incomplete markets.

Global Real Rates: A Secular Approach, with Pierre-Olivier Gourinchas and Hélène Rey, 2022

Several Follow-ups to "When Green Investors Are Green Consumers" (with O. David Zerbib, and with Idan Hodor and Fernando Zapatero)

Several Empirical Asset Pricing Projects on Sustainable Finance (with Jiayi Zhu, and with Sen Yang)

Several Projects based on Revelio Labs data (with Mayank Kumar, Lisa Simon, and O. David Zerbib)

N Investors, M Trees, L Goods ("NML")