Working Papers
1. ”The Economics of Sustainability-Linked Bonds” (with Tony Berrada, Rajna Gibson, Philipp Krueger)[SSRN]
Awards: Fidelity Best Paper Award at the SGFIN Annual Research Conference on Sustainability 2023
Abstract: Relying on theory and empirical analysis, we study the real effects and pricing of Sustainability-Linked Bonds (SLBs). After issuance, SLB issuers decarbonize approximately seven percentage points faster per year than non-issuers. Our theory helps to understand the incentive structure and pricing of SLBs. Using a novel mispricing measure, we test several empirical predictions of our model. Overpriced SLBs at issuance experience negative secondary market returns. Stock markets react more positively to large, overpriced SLB issues, suggesting a wealth transfer from bondholders to shareholders. Finally, SLB mispricing is positively associated with firms' ESG ratings. Our analysis shows that SLBs play a significant role in influencing firms' decarbonization efforts and that these instruments carry meaningful implications for financial markets.2. ”Political Green or Market Green? Stock Purchase Preferences Among Swiss Retail Investors” [on request]
Abstract: Leveraging a novel dataset, I study the relationship between green political party exposure and the investment decisions of Swiss retail investors. Looking at affirmative voting outcomes for the Green Party of Switzerland (GPS) and the Green Liberal Party (GLP) and controlling for votes for major parties in Switzerland, I find that investors in areas with strong support for both green parties show a preference for stocks with higher ESG performance, mainly due to GLP support. When examining the parties separately, the relationship appears contrarian for both. These findings are strengthened when controlling for investor fixed effects, suggesting the political climate influences indeed play a role for investment preferences. Although preferences for lower CO2-emission stocks are mixed, the contrarian pattern persists for green versus brown industries. Finally, in terms of past investment performance, investors in areas with strong support for the GLP consistently exhibit superior performance compared to those in areas with high GPS support. Overall, the results suggest that changes in the political climate significantly influence asset selection, particularly when sustainability and environmental issues are prominent.3. ”Skilled and Sustainable: Investment Choices and Performance of Swiss Retail Investors” [on request]
Abstract: I use a novel data set to investigate sustainable trading of Swiss retail investors. Based on an investor ‘s past trading decisions in sustainable-labelled funds and bonds I gauge the sustainability preference of investors and identify sustainable investors. Then I analyze their stock purchases preferences and their investment performance. Investors with higher sustainability preference purchase stocks with higher ESG scores and lower CO2 emissions. They are more likely to purchase stocks in green industries and less likely to purchase stocks in brown industries. Finally, these investors show higher past investment returns and lower investment volatility. Overall, the findings suggest that especially skilled investors engage in sustainable investing, after having experienced positive returns and that these investors do not hedge their stock ESG risk from brown stock investments but have consistent sustainability preferences across asset classes and industries.4. ”Doing Better by Doing Good: ESG Information and Retail Investor Behavior” [on request]
Abstract: I investigate how the access to ESG information affects retail investor behavior by analyzing trading activity, portfolio holdings, and investment performance. Following the introduction of ESG information on the trading platform, investors increase their value-weighted ESG portfolio scores, they trade and purchase more high ESG score stocks and sell less high ESG stocks. They also improve stock selection by favoring companies with better fundamentals and stocks with higher returns and lower volatility. Portfolio tilting leads to better diversification, as investors hold more distinct equities and allocate capital across a broader range of countries and industries. On the performance side, increases in ESG and higher ESG scores are associated with higher returns, whereas the latter also relates to lower return volatility and higher Sharpe ratios. Finally, these adjustments are primarily driven by older investors, women, and individuals residing in areas with strong green policy support.