Research

Job Market Paper

Climate Disaster Risk and Stock Returns

This paper investigates whether climate disaster risk is priced in the cross-section of U.S. stock returns. I construct national and state-level climate disaster indices for the Contiguous United States based on the physical strength of acute climate hazards (storms, floods, droughts, and heatwaves). These indices are used to estimate stock return covariance with physical climate risk, which leads to finding that safer stocks, those with a higher climate disaster beta, earn lower future returns. In particular, this negative relation between climate disaster beta and future returns becomes more pronounced following times of heightened disaster risk. This paper further shows that geographically dispersed business operations and high cash holdings pay off when the market is concerned about climate change risk. These findings are consistent with the risk-return tradeoff and the asset pricing implications of demand for stocks with high potential to hedge against climate risk.

Journal Publications

The Brazilian granular business cycle (with Sergio Da Silva (Economics Bulletin (2020))

We investigate whether the granular hypothesis holds for the Brazilian business cycle and find that idiosyncratic shocks to net revenues of the top 100 companies explain about one-third of GDP fluctuations for annual data. Quarterly data cannot dismiss the granular hypothesis either. However, the granular hypothesis seems to break down after the 2008 financial crisis.

A power law in the ordering of the elements of the periodic table (with Sergio Da Silva, Raul Matsushita (Physica A (2020))

We discover a power law in the periodic table between atomic number and atomic weight that overlaps Mendeleev’s periodic law. Its Pareto exponent is computed as 1.0909. The power law can offer extra help in the quest for the next unknown element.

The Impact of Monetary Policy in Banks Balance Sheets: Evidence for Brazil (in Portuguese) (with Alexandre Schwinden Garcia, Roberto Meurer (Revista Brasileira de Economia de Empresas (Brazilian Journal of Business Economics) (2019))

This paper aims to verify the existence of the bank lending channel in the Brazilian economy, that is, if monetary policy movements affect the lending behavior of the banks and if there are asymmetric effects among the banks. For large banks, it has been found that funding increases in response to a contractionary monetary policy. For the higher liquidity accounts, the results point to a reduction in the growth rate of these accounts for small and medium-sized banks. In addition, a contractionary monetary policy does not affect small and medium-sized banks’ credit operations, while it has positive effects on large banks’ credit operations. From the evidences found, it was not possible to confirm the existence of the lending channel for the Brazilian economy.

Regressive Prediction Is the Best Way to Forecast Sports Outcomes: Evidence from Brazilian Soccer (with Sergio Da Silva (Open Access Library Journal (2019))

We illustrate through a case study that regressive prediction is the best method to forecast sports outcomes. By taking predictions of promotion to first division soccer from a mathematician from one of the most famous sports websites in Brazil, we show that making Bayesian updates is misleading when we expect regression to the mean. The expert failed to realize that the more extreme the results are, the more regression is expected, because extremely good scores suggest very lucky days.

Work in Progress

Extreme Weather in Europe: Determinants and Economic Impact (with Marcelle Chauvet and Claudio Morana)

This paper investigates the linkage between deteriorating extreme weather conditions and anthropogenic GHG emissions and their economic impact on 40 European countries. The analysis employs the European Extreme Events Climate Index (E3CI) and its seven subcomponents, i.e., extreme maximum and minimum temperatures, wind speed, precipitation, droughts, wildfires, and hail. Using an innovative panel regression-based trend-cycle decomposition approach, we find support for the contribution of human-made GHG emissions to the deterioration of underlying extreme weather conditions and their highly nonlinear pattern. We then conduct a Growth-at-Risk analysis within a quantile panel regression framework to assess the economic implications of our findings. We show that deteriorating extreme weather conditions, as measured by the E3CI index, negatively impact the entire GDP growth rate distribution. Yet the impact on the downside risk to growth is much more substantial than the upside risk. This result holds for various E3CI components, such as rising extreme maximum temperature, wind speed, drought, and wildfires.

Fifty Shades of Green: Central Bank Communication About Climate Change And Inflation Expectations (with Jana Grittersova and Eleonora Mavroeidi)

This study explores how central banks discuss climate change and whether such communication affects the behavior and expectations of financial markets. Specifically, it examines whether the frequency of central bank communication on climate-related risks influences the inflation expectations of financial markets. Central bank communication about climate change can influence these expectations by creating uncertainty about future climate policies that the central bank might adopt. When a central bank incorporates climate objectives into its policy discourse, it creates uncertainty among financial market participants about its commitment to its mandates, such as maintaining price stability and safeguarding central bank autonomy. There is also the concern that the central bank could be perceived as the last resort to rescue the financial system in the face of climate-induced risks. To investigate this, we compiled a novel and comprehensive database of speeches addressing climate change by representatives of the European Central Bank and national central banks of the eurozone countries from January 2008 to December 2022. This dataset enables us to examine how central bankers’ speeches influence private inflation expectations, as measured by market-based indicators. Using local projections, we find that more frequent speeches on climate change and higher intensity of climate-related language within speeches are associated with increased inflation expectations among financial market participants across various maturity horizons, spanning from one year to ten years. Moreover, we found that the effect of these speeches varies depending on the speaker; notably, speeches delivered by representatives of central banks from the founding members of the eurozone influence shifts in inflation expectations. This holds even when accounting for macroeconomic surprises, central bank interest rate decisions, and alternative estimation methods. Our findings suggest that central bank discourse on climate change offers valuable insights into future financial market inflation expectations.