Stefano Giglio
Frederic D. Wolfe Professor of Finance and Management, Yale School of Management
NBER Research Associate
CEPR Research Affiliate
Embedded Files
Working Papers
Working Papers
Using density forecasts to measure the stability of inflation expectations, with Ian Dew-Becker and Pooya Molavi, February 2026
The anchoring of inflation expectations is a major objective of modern monetary policy. This paper estimates variation over time in the sensitivity of inflation expectations to news. The function describing the response of an agent’s expectations to news is fundamentally unobservable since on a given date we only see the single realization of news that actually occurred. However, under the assumption that agents apply Bayes’ rule and that they believe their signals are Gaussian (hence allowing for a wide range of behavioral biases), the marginal response of expectations to signals is proportional to agents’ uncertainty about future inflation. Empirically, both in the time-series and the cross-section, reported uncertainty both contemporaneously explains and also predicts the future sensitivity of expectations to news. The results imply that as of 2025, inflation expectations are 2–3 times more sensitive to news than prior to 2020.
Learning and the emergence of nonlinearity in financial markets, with Ian Dew-Becker and Pooya Molavi, December 2025
Financial markets (and more generally the real economy) display a wide range of important nonlinearities. This paper focuses on stock returns, which are skewed left – generating crashes – and whose volatility moves over time, is itself skewed, is strongly related to the level of prices, and displays long memory. This paper shows that such behavior is almost inevitable when prices are formed by investors acquiring information about the true, but latent, value of stocks. It studies a general model of filtering in which agents receive signals about the fundamental value of the stock market and dynamically update their beliefs (potentially with biases). When those beliefs are non-normal and investors believe crashes can happen, prices generically display the range of nonlinearities observed in the data. While the model does not explain where crashes come from, it shows that investors believing that prices can crash is sufficient to generate the rich higher-order dynamics observed empirically. In a simple calibration with iid shocks to fundamentals, the model fits well quantitatively, and regression-based tests support the model’s mechanism.
Climate Transition Risks and the Energy Sector, with Viral Acharya, Stefano Pastore, Johannes Stroebel, Zhenhao Tan, and Tiffany Yong, January 2025
We build a general equilibrium model to study how climate transition risks affect energy prices and the valuations of different firms in the energy sector. We consider two types of fossil fuel firms: incumbents that have developed oil reserves they can extract today or tomorrow, and new entrants that must invest in exploration and drilling today to have reserves to potentially extract tomorrow. There are also renewable energy firms that produce emission-free energy but cannot currently serve non-electrifiable sectors of the economy. We analyze three sources of climate transition risk: (i) changes in the probability of a technological breakthrough that allows renewable energy firms to serve all economic sectors; (ii) changes in expected future taxes on carbon emissions; and (iii) restrictions on today’s development of additional fossil fuel production capacity. We show that the different transition risk—and, importantly, uncertainty about their realizations—have distinct effects on firms’ decisions, on their valuations, and on equilibrium energy prices. We provide empirical support for the heterogeneous effects of different transition risks on energy prices and stock returns of firms in different energy sub-sectors.
The Economics of Biodiversity Loss, with Theresa Kuchler, Johannes Stroebel, and Olivier Wang, September 2025
We explore the economic effects of biodiversity loss by developing an ecologically-founded model of how different species interact to deliver the ecosystem services that contribute to economic production. Ecosystem services are produced by combining several complementary ecosystem functions such as pollination and water filtration, which are each provided by several substitutable species. It follows that economic output is an increasing but concave function of species richness, and the economic cost of losing a species depends on: (i) how many redundant species remain within its ecosystem function, and (ii) how critical the affected function is for ecosystem productivity. We derive an expression for the fragility of ecosystems and economic output to further biodiversity loss, and show that it increases with both mean species losses as well as the imbalance of species losses across ecosystem functions. Consistent with the model, we illustrate that empirical measures of these components of ecosystem fragility are reflected in market assessments of risk in the cross-section of countries, which we extract from the prices of sovereign credit default swaps. We conclude by embedding our model of ecosystem services production in an intertemporal planning problem and study optimal land use when allocating land to production raises output at the cost of reducing biodiversity
Prediction When Factors are Weak, with Dacheng Xiu and Dake Zhang, March 2023
In macroeconomic forecasting, principal component analysis (PCA) has been the most prevalent approach to the recovery of factors, which summarize information in a large set of macro predictors. Nevertheless, the theoretical justification of this approach often relies on a convenient and critical assumption that factors are pervasive. To incorporate information from weaker factors, we propose a new prediction procedure based on supervised PCA, which iterates over selection, PCA, and projection. The selection step finds a subset of predictors most correlated with the prediction target, whereas the projection step permits multiple weak factors of distinct strength. We justify our procedure in an asymptotic scheme where both the sample size and the cross-sectional dimension increase at potentially different rates. Our empirical analysis highlights the role of weak factors in predicting inflation, industrial production growth, and changes in unemployment.
What Drives Booms and Busts in Value?, with John Campbell and Christopher Polk, November 2023
Value investing delivers volatile returns, with large drawdowns during both market booms and busts. This paper interprets these returns through an intertemporal CAPM, which predicts that aggregate cash flow, discount rate, and volatility news all move value returns. We document that indeed these shocks explain a large fraction of quarterly value returns over the last 60 years. We also distinguish between the intra-industry and inter-industry components of value, showing that the ICAPM explains the former better. Finally, we develop a novel methodology to perform this decomposition at the daily frequency, using it to interpret value returns during the Covid-19 pandemic.
The decline of the variance risk premium: evidence from traded and synthetic options, with Ian Dew-Becker, July 2024
The historical returns on equity index options are well known to be strikingly negative, with large negative CAPM alphas. That is typically explained either by investors having convex marginal utility over stock returns (e.g. crash/variance aversion) or by intermediaries demanding a premium for hedging risk. This paper shows that over the last 15 years, the returns of traded options have become significantly less negative, to the point that their CAPM alpha (and, relatedly, that of the variance risk premium) is now statistically indistinguishable from zero. We also build dynamically replicated, or synthetic, options, and show that over the period 1926–2022 they always had zero alpha. To explain these facts, the paper develops a model where the negative alpha of traded options between the late 80s and the early 2000s was driven by the risk that intermediaries in the options market had to bear; those alphas did not reflect the risk preferences of the average equity investor. Instead, synthetic options, based entirely on the price of the equity index, directly reflect the representative investor’s risk preferences: those show that the average investor never, over the last century, required high risk compensation for market downturns. Over time, as the quantity of risk borne by intermediaries declined, the risk premium of the traded options converged to those of the synthetic options. We provide empirical evidence on risk exposures of dealers consistent with the model.
Credit Default Swap Spreads and Systemic Financial Risk, April 2014
Runner-up, Ieke van den Burg Prize for Research on Systemic Risk 2015
This paper measures the joint default risk of financial institutions by exploiting information about counterparty risk in credit default swaps (CDS). A CDS contract written by a bank to insure against the default of another bank is exposed to the risk that both banks default. From CDS spreads we can then learn about the joint default risk of pairs of banks. From bond prices we can learn the individual default probabilities. Since knowing individual and pairwise probabilities is not sufficient to fully characterize multiple default risk, I derive the tightest bounds on the probability that many banks fail simultaneously.
Publications
Publications
35. A Quantity-Based Approach to Constructing Climate Risk Hedge Portfolios, with Georgij Alekseev, Quinn Maingi, Julia Selgrad and Johannes Stroebel
Journal of Finance, forthcoming
Best Paper in Asset Pricing at the 2022 SFS Cavalcade
Two Sigma Award, Best Paper on Investment Management, 2022 WFA Meetings
34. Nature and Biodiversity Loss: A Research Agenda for Financial Economics, with Theresa Kuchler, Johannes Stroebel, and Olivier Wang
Journal of Finance: Insights and Perspectives, forthcoming
33. Investor Beliefs and Expectation Formation, with Matteo Maggiori, Joachim Rillo, Johannes Stroebel, and Steve Utkus, and Xiao Xu
Annual Review of Financial Economics, forthcoming
32. Biodiversity Risk, with Theresa Kuchler, Johannes Stroebel, and Xuran Zeng
Review of Finance (Special Issue for Biodiversity and Natural Resource Finance), forthcoming
Northwestern University Moskowitz Prize for sustainable finance research, 2023
Berkeley Haas Sustainable Business Research Prize, 2023
[Data]
31. Nature Loss and Climate Change: the Twin-Crises Multiplier, with Theresa Kuchler, Johannes Stroebel, and Olivier Wang
AEA Papers and Proceedings (2025), 115: 409-414
30. Four Facts about ESG Beliefs and Investor Portfolios, with Matteo Maggiori, Johannes Stroebel, Zhenhao Tan, Stephen Utkus, and Xiao Xu
Journal of Financial Economics (2025), 164
Northwestern University Moskowitz Prize for sustainable finance research (honorable mention)
29. Test Assets and Weak Factors, with Dacheng Xiu and Dake Zhang
Journal of Finance (2025), 80(1), 259-319
[Code]
28. Recent Developments in Financial Risk and the Real Economy, with Ian Dew-Becker
Annual Review of Financial Economics (2024), 16 (4):1-22
27. Equity Term Structures without Dividend Strips Data, with Bryan Kelly and Serhiy Kozak
Journal of Finance (2024), 79 (6)
[Data]
26. Cross-sectional uncertainty and the business cycle: evidence from 40 years of options data, with Ian Dew-Becker
American Economic Journal: Macroeconomics (2023), 15 (2): 65-96
[Data]
25. The effect of climate risks on the interactions between financial markets and energy companies, with Arthur van Benthem, Edmund Crooks, Eugenie Schwob and Johannes Stroebel
Nature Energy (2022), 7: 690–697
24. Factor Models, Machine Learning, and Asset Pricing, with Bryan Kelly and Dacheng Xiu
Annual Review of Financial Economics (2022), 14: 337-68
23. The Collateral Rule: Evidence from the Credit Default Swap Market, with Agostino Capponi, Allen Cheng, Chuan Du, and Richard Haynes
Journal of Monetary Economics (2022), 126: 58-86
22. Climate Change and Long-Run Discount Rates: Evidence from Real Estate, with Matteo Maggiori, Krishna Rao, Johannes Stroebel, and Andreas Weber
Review of Financial Studies (2021), 34(8): 3527-3571
RFS Editor's Choice Article
RFS Michael Brennan Best Paper Award Runner Up 2022
21. Asset Pricing with Omitted Factors, with Dacheng Xiu
Journal of Political Economy (2021), 129(7): 1947-1990
Lead Article
Best Paper Prize at the 2017 European Financial Association conference
[Online Appendix] [Code]
20. The joint dynamics of investor beliefs and trading during the COVID-19 crash, with Matteo Maggiori, Johannes Stroebel and Stephen Utkus
PNAS (2021), 118(4)
Previously circulated as "Inside the Mind of a Stock Market Crash"
19. Five Facts About Beliefs and Portfolios, with Matteo Maggiori, Johannes Stroebel, and Steven Utkus
American Economic Review (2021), 111 (5): 1481-1522
2021 AQR Insight Award (Distinguished Paper)
Best Behavioral Finance Paper, Midwest Finance Association Meetings 2020
Yuki Arai Faculty Research Prize for Finance 2019
18. Climate Finance, with Bryan Kelly and Johannes Stroebel
Annual Review of Financial Economics (2021), 13:15-36
17. Hedging macroeconomic and financial uncertainty and volatility, with Ian Dew-Becker and Bryan Kelly
Journal of Financial Economics (2021), 142: 23-45
[Data] [Online Appendix]
16. Thousands of alpha tests, with Yuan Liao and Dacheng Xiu
Review of Financial Studies (2021), 34(7): 3456-3496
[Online Appendix] [Code]
15. Taming the Factor Zoo: a Test of New Factors, with Guanhao Feng and Dacheng Xiu
Journal of Finance (2020), 75(3): 1327-1370
AQR Insight Award 2018, First Prize
14. Uncertainty Shocks as Second-Moment News Shocks, with David Berger and Ian Dew-Becker
Review of Economic Studies (2020), 87(1): 40-76
[Data] [Online Appendix]
(Previous Title: "Contractionary Volatility or Volatile Contractions"?)
13. Hedging Climate Change News, with Robert Engle, Bryan Kelly, Heebum Lee and Johannes Stroebel
Review of Financial Studies (2020), 33(3): 1184-1216
[Data]
12. An Intertemporal CAPM with Stochastic Volatility, with John Campbell, Christopher Polk and Bob Turley
Journal of Financial Economics (2018), 128(2): 207-233
Lead article
Fama-DFA Prize for the Best Paper Published in the Journal of Financial Economics (Asset Pricing), 2018
11. Excess Volatility: Beyond Discount Rates, with Bryan Kelly
Quarterly Journal of Economics (2018), 133(1): 71-127
Finalist, AQR Insight Award, 2016
Napa Conference Best Paper Award, 2016
10. The Price of Variance Risk, with Ian Dew-Becker, Anh Le and Marius Rodriguez
Journal of Financial Economics (2017), 123(2): 225-250
Lead article
[Data] [Online Appendix]
9. Asset Pricing in the Frequency Domain: Theory and Empirics, with Ian Dew-Becker
Review of Financial Studies (2016), 29(8): 2029-2068
[Online Appendix] [Coverage: VoxEU]
8. No-Bubble Condition: Model-Free Tests in Housing Markets, with Matteo Maggiori and Johannes Stroebel
Econometrica (2016), 84(3): 1047-1091
[Online Appendix] [Reply] [Coverage: VoxEU]
7. Systemic Risk and the Macroeconomy: An Empirical Evaluation, with Bryan Kelly and Seth Pruitt
Journal of Financial Economics (2016), 119(3): 457-471
Lead article
Fama-DFA Prize for the Best Paper Published in the Journal of Financial Economics (Asset Pricing), 2016
Q-Group Roger F. Murray Prize (3rd prize), 2015
[Online Appendix] [Data] [Coverage: MoneyAndBanking.com; VoxEU; BFI]
6. A Review of Long-Run Discounting: evidence from Housing Markets, with Matteo Maggiori
Rivista di Politica Economica (2016), 4, 7-36 (not refereed)
5. Very Long-Run Discount Rates, with Matteo Maggiori and Johannes Stroebel
Quarterly Journal of Economics (2015), 130(1): 1-53
QJE Lead Article
QJE Editor's Choice article
Jacob Gold & Associates Best Paper Prize, ASU Sonoran Winter Finance Conference, 2014
NYU Glucksman Institute Faculty Research Prize for the Best Paper in Finance, 2015
[Online Appendix] [NBER WP Version] [Data]
[Coverage: Forbes ; Economist, May 2014 ; National Review ; NBER Digest ; VoxEU; Economist, April 2015]
4. No News is News: Do Markets Underreact to Nothing?, with Kelly Shue
Review of Financial Studies, (2014), 27(12): 3389-3440
Lead Article
Winner of the UBS Global Asset Management Award for Research in Investments, FRA Meeting 2012
3. Hard Times, with John Campbell and Christopher Polk
Review of Asset Pricing Studies (2013), 3(1): 95-132
2. Intangible Capital, Relative Asset Shortages, and Bubbles, with Tiago Severo
Journal of Monetary Economics (2012), 59: 303-317
1. Forced Sales and House Prices, with John Campbell and Parag Pathak
American Economic Review (2011), 101(5): 2108–31
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