Working Papers

Greenium and Energy Risk (Job Market Paper)

I examine whether the equity greenium, the return differential between green and brown firms, reflects compensation for exposure to energy price risk. Green firms have outperformed carbon-intensive peers in the last decade, a pattern often attributed to investors' green preferences. I propose a risk-based explanation: positive energy price shocks increase the returns of brown energy firms, while green firms with lower exposure to such shocks become relatively riskier. Empirically, I show that the greenium is largely spanned by energy risk and declines by up to 40% once this risk is accounted for. Using a structural decomposition of oil and gas price shocks, I find that only the demand-driven component of energy risk is priced, and that its contribution to the expected greenium is highly time-varying, switching sign around major energy demand shocks. Overall, these results reinterpret the greenium as a macro-risk premium associated with demand-driven energy risk rather than a mere reflection of green preferences.

How is Inflation Priced in Global Markets ?  with Ines Chaieb and Vihang Errunza

We examine how inflation risk is priced in 38 markets from 1989 to 2022. International markets feature distinct persistence and volatility of their inflation components. Further, the shares of core, energy, and food in the consumer basket differ significantly across countries. Hence, we separately model the inflation components in partially segmented markets, allowing for time variation in the risk factors and their prices. We find shocks to core inflation command global and local risk premiums, while shocks to food and energy inflation are only priced locally in some countries, especially in emerging markets. Our study provides new insights into the dynamics of different inflation components and highlights the importance of distinguishing between global and local inflationary forces.