Anomaly-based investment/pricing factors are typically built from portfolios double-sorted on size and one additional characteristic, applying simple long/short fixed-weights schemes. Characteristic-based portfolios show significant time variations of their abnormal returns and market exposures....

What is the joint impact of different resolution regimes and capital requirements on the optimal liability structure of a bank holding insured deposits and issuing non-bail-inable debt and bail-inable Tier1-capital debt? We address this novel question and find that: 1) a credible bail-in...

The market demand for TIPS is rather small. This seems surprising, as we show that a rational agent, dynamically investing into multiple asset classes over a 30-year horizon, benefits by a 1.7% certainty equivalent gain per annum from having access to inflation-indexed bonds. However, if the...

We carefully study the transmission mechanisms from default-free rates to corporate bond prices within structural models of endogenous default risk. The transmission critically depends on whether the model is value-based or EBIT-based, on the assumptions made for the drift of the state variable,...

In the time-series (ordinal ESG) or the cross-section (cardinal ESG)? We show analytically that, when proper adjustment to guarantee identical ESG ratings is implemented, the return spread of the factors produced by the two methods is merely noise. We provide a protocol to construct a...

This paper analyzes the asset pricing and portfolio implications of an important barrier to sustainable investing---uncertainty about the corporate ESG profile. In equilibrium, the market premium increases and demand for stocks declines under ESG uncertainty. In addition, the CAPM alpha and...

This paper develops and applies an equilibrium model that accounts for ESG demand and supply dynamics. In equilibrium, ESG preference shocks represent a novel risk source characterized by diminishing marginal utility and positive premium. Expected green asset returns are negatively associated...