Assistant Professor, September 2017 – present
Visiting Assistant Professor, August 2015 – August 2017
Visiting Scholar, September 2014 – August 2015
Doctoral Student and Postdoctoral Fellow, December 2008 – August 2014
Ph.D. in Finance (grade: summa cum laude), October 2013
Visiting Ph.D. Student, September 2011 – January 2012
Master of Science, Mathematics, November 2008
What is the role of macroeconomic fluctuations and of oil supply shocks for oil prices, volatilities, and risk premia? I analyze this question within a general equilibrium asset pricing framework with an oil sector. The benchmark calibration shows that short-run macroeconomic growth shocks and oil productivity shocks account for the largest part of the volatility in the oil market and are responsible for the mean-reversion behavior of oil prices. On the other hand, long-run macroeconomic growth risks are the main driver of risk premia on oil futures and their upward-sloping term structure, which is observed in the data. The model consistently explains quantity and price dynamics in the oil sector and in the general macroeconomy, and furthermore sheds light on the intricate relationship between oil and equity returns.
Presentations: NBER Economics of Commodity Markets Meeting 2016, SFS Finance Cavalcade 2016, Northern Finance Association 2016, Financial Management Association 2016, SAFE Asset Pricing Workshop 2015, UCLA IPAM Commodities Workshop 2015, German Finance Association 2015
In equity option markets, traders face margin requirements both for the options themselves and for hedging-related positions in the underlying stock market. We show that these requirements carry a significant margin premium in the cross-section of equity option returns. The sign of the margin premium depends on demand pressure: If end-users are on the long side of the market, option returns decrease with margins, while they increase otherwise. Our results are statistically and economically significant and robust to different margin specifications and various control variables. We explain our findings by a model of funding-constrained derivatives dealers that require compensation for satisfying end-users' option demand.
Presentations: American Finance Association 2018, European Finance Association 2017, SFS Finance Cavalcade 2017, Midwest Finance Association 2017, Swiss Society for Financial Market Research 2017, Paris December Finance Meeting 2016, German Finance Association 2016
This article studies the effects of leverage constraints on asset management fees. We present a new model in which constrained investors delegate capital to asset managers. In the equilibrium, risk-seeking investors choose high beta managers who charge high fees for providing embedded leverage. Our empirical results in the sample of the U.S. equity mutual funds are consistent with the model's three novel predictions: 1) fees increase in market beta, but only when beta is larger than one, 2) this relation is stronger when leverage constraints tighten, and 3) fund net alpha declines in beta faster than its gross alpha. Our study suggests that willingness to pay for embedded leverage helps explain net-of-fees underperformance of actively managed funds.
An increase in oil price volatility predicts a decline in economic growth, controlling for market volatility and business cycle variables. At the same time, oil inventories increase and oil consumption falls. High oil uncertainty further negatively affects equity prices, with a differential impact across economic sectors. We develop a two-sector production model to explain the empirical evidence. Oil is an essential input for production and can be stored. At times of high oil volatility, oil suppliers increase oil inventories and curb oil supply to the market. Due to this precautionary savings motive, aggregate growth goes down and asset prices fall.
Presentations: EABCN Asset Prices and the Macro Economy Conference 2018, American Finance Association 2017, Midwest Finance Association 2017, Commodity and Energy Markets Annual Meeting 2017, BI CAPR Investment- and Production-Based Asset Pricing Workshop 2017, Citrus Finance Conference 2017, Western Finance Association 2016, European Finance Association 2016, Econometric Society North American Summer Meeting 2016, World Finance Conference 2016
This paper investigates the costs of oil shocks for the economy's welfare. Using a VECM, we empirically show that domestic US oil production shocks only have a weak and temporary impact on macroeconomic variables, while the effect of global oil price shocks is persistent and economically and statistically significant. We rationalize these findings within a calibrated two-sector model in which oil is an input factor for industrial production and also part of the household's consumption bundle. Based on the model, we show that oil shocks are associated with considerable welfare costs for oil-importing economies. Our framework enables several experiments regarding the welfare implications of a reduced oil share in production and consumption, the strategic petroleum reserve, and technological innovations such as fracking.
Presentations: Society for Economic Dynamics 2017, Commodity and Energy Markets Annual Meeting 2017, Econometric Society North American Summer Meeting 2016, Commodity Markets Conference 2016, World Finance Conference 2016
In a production economy, uncertainty and learning about persistence generates countercyclical consumption volatility. When the persistence of productivity is unobservable, consumption responds differently to productivity shocks, depending on the state of the economy. In bad economic times, a negative shock prompts agents to extrapolate that productivity becomes more persistent, which reinforces consumption's response to bad news. The opposite extrapolation occurs in good times, when productivity becomes less persistent after a negative shock, partially offsetting the bad news. This asymmetric response to productivity shocks amplifies the volatility of consumption in bad times, but attenuates it in good times. In contrast, other types of learning generate constant or procyclical volatility of consumption, at odds with empirical evidence.
This article presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today’s cap-and-trade systems. We characterize emission permits as highly nonlinear contingent claims on economy-wide emissions and reveal their hybrid nature between investment and consumption assets. Our model makes predictions about the dynamics and volatility structure of emission permit prices, the forward price curve, and the implications for option pricing in this market. Empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives.
The design of environmental trading systems induces specific features of the emission permit price dynamics. In this paper, we evaluate the performance of reduced-form models for emission markets that capture these features in a simplified way and are still feasible for calibration to permit spot, futures, and option prices. Using market data from the European Union Emissions Trading System as the world's largest environmental market, we show that appropriately specified reduced-form models outperform standard approaches with respect to both the historical fit to futures prices and the option pricing performance. Moreover, the performance of reduced-form models critically depends on their consistency with the design of the emission trading system.
This paper investigates the impact of the yearly announcement of realized emissions on the European carbon permit market. We find that this event generally leads to significant absolute abnormal returns on the event day, which are accompanied by increased trading volumes and high intraday volatilities. To the contrary, trading is particularly calm on the days before the event, as suggested by significantly lower trading volumes and volatilities. The high event-day volatility is expected by the market and incorporated in emission permit option prices. In line with these significant market reactions, we provide evidence that the emissions announcement has an outstanding information content for the market compared to other relevant news events.
This thesis studies the stochastic behavior of emission permit prices and its implications for related derivatives from a theoretical and an empirical perspective. It presents an equilibrium model for cap-and-trade systems, evaluates the empirical performance of reduced-form models for emission permit prices, and studies the effects of the yearly emissions announcement event on the European market for carbon emissions.
Last update: October 2019