Working Papers

• "The Real Cost of Benchmarking" [Updated 3/2025] (with Sebastian Hanson)
[Abstract]   [Draft]   [SSRN]   [BibTex]
This paper provides causal evidence that asset price distortions caused by benchmarking affect corporate investment decisions. We document that the rise in benchmark-linked investing over the past two decades fundamentally changed the cross-section of CAPM βs. Exploiting exogenous variation from Russell index reconstitutions, we show inclusion in benchmark indices leads to higher CAPM βs, with larger effects observed among stocks facing greater benchmarking intensity. Firm managers interpret the resulting higher CAPM β as an increase in their firm's cost of capital, leading them to reduce investment. Six years after inclusion, firms experience 7.1% and 8.4% declines in physical and intangible capital, respectively. Supporting evidence shows that benchmark-inclusion similarly increases the perceived cost of equity among stock analysts and regulators. We find consistent results at the industry level. Industries which experienced greater increases in CAPM βs due to benchmarking accumulated less capital over the past two decades. Moreover, benchmarking creates excess dispersion in the cost of capital within industries, causing inefficient capital allocation across firms. The rise in CAPM βs largely offset the decline in the risk-free rate over the past decades and can explain 57% of the “missing investment” puzzle.



@techreport{kontzhanson2024,
   title={The Real Cost of Benchmarking},
   author={Kontz, Christian and Hanson, Sebastian},
   type={Working Paper},
   institution={Stanford University},
   year={2024},
}




• "Do ESG Investors Care About Carbon Emissions? Evidence From Securitized Auto Loans" [Updated 1/2025]
  [Abstract]   [Draft]   [SSRN]   [BibTex]
  The ESG convenience yield in auto loan securitizations rose from 0.03% in 2017 to 0.54% in 2022. Consumers financing vehicles through captive lenders benefit from lower borrowing costs. However, the focus on ESG scores also lowers the cost of capital for high-emissions vehicles. ESG funds allocate more capital to securitizations from issuers with high ESG scores even when they finance high-emissions vehicles. A model of subjective beliefs in which investors heuristically infer CO2 emissions from ESG scores can explain the observed effects. These findings suggest that ESG investing affects real quantities but does not raise the cost of emitting CO2.
  
  
  
  @techreport{kontz2023esg,
     title={Do ESG Investors Care About Carbon Emissions? Evidence From Securitized Auto Loans},
     author={Kontz, Christian},
     type={Working Paper},
     institution={Stanford University},
     year={2023},
  }
  

Work in Progress

• "ESG Induced Capital Misallocation: is ESG Doing Good, by Doing Well?"
[Abstract]
This paper studies the impact of environmental, social, and governance (ESG) investing on the real economy. Using within industry-year variation, I find that 1.) firms with high ESG ratings have low marginal revenue products of capital (MRPK), while, 2.) firms with high sales per tCO2 emission have high MRPKs. This implies that reallocating capital to firms with high ESG ratings lowers allocative efficiency while reallocating capital to greener firms increases it. Motivated by these facts, I estimate a dynamic investment model featuring convenience yields on ESG assets and a CO2 externality to explore the implications of ESG investing for capital misallocation and climate change mitigation.



• "From Markets to Meters: How Passive Investing Affects Utility Rates"
[Abstract]
This paper studies how passive investing affects regulated utility rates and energy prices by increasing utilities’ CAPM βs. Exploiting exogenous variation around stock index reconstitutions, I show that increased passive ownership raises the CAPM βs of U.S. investor-owned utilities. Because regulators set allowed returns on equity using the CAPM, higher βs translate into higher authorized returns on equity. Investor-owned utilities pass these increased returns on equity through to the rates they charge consumers. I estimate that this mechanism has resulted in over $60 billion in additional costs to consumers over the past two decades. Evidence from regulated railroads corroborates the effect of passive investing on the cost of equity in regulated industries.



• "The Cross-section of Prices" (with Hanno Lustig and Miguel Chumbo)