Working Papers

• "The Real Cost of Benchmarking" [New 07/2024] (with Sebastian Hanson)
[Abstract]   [Draft]   [SSRN]   [BibTex]
This paper provides causal evidence that benchmarking-induced asset price distortions have real effects on corporate investment. We exploit exogenous variation in stocks' benchmarking intensity around Russell index reconstitutions to establish causality. We find that increased exposure to benchmark-linked capital flows causes stocks' CAPM β to rise. Firm managers perceive this as an increase in their cost of capital and reduce investment. Treated firms have 7.1% less physical and 8.4% less intangible capital after six years. At the aggregate level, the asset price distortions caused by benchmarking can explain 10.7% lower capital accumulation from 2000 to 2016. Our findings highlight how benchmark-linked investing affects capital allocation in the real economy.



@techreport{hansonkontz2024,
   title={The Real Cost of Benchmarking},
   author={Hanson, Sebastian and Kontz, Christian},
   type={Working Paper},
   institution={Stanford University},
   year={2024},
}



• "Do ESG investors care about carbon emissions? Evidence from securitized auto loans" [Updated 05/2024]
  [Abstract]   [Draft]   [SSRN]   [BibTex]
  Securitized auto loans present a clean empirical setting to study the effects of ESG investing on equilibrium asset prices and quantities. I find that the convenience yield of ESG investments increased almost threefold from 0.14% in 2017 to 0.39% p.a. in 2022. The pass-through of this convenience yield to consumer interest rates can be substantial for captive lenders, with implied changes in consumer loan demand ranging from 1.05% to 4.77%. However, I document that the market's focus on firm-level ESG scores, rather than the collateral's CO2 emissions, lowers the cost of capital for high-emission auto ABS by 6 basis points; due to a positive correlation between ESG scores and CO2 emissions. ESG mutual funds allocate more capital to auto ABS from issuers with higher ESG scores, even if those securities finance higher-emission vehicles. These findings highlight that while green premia can have a meaningful impact, they do not necessarily increase 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 show 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. Additionally, I document that that 3.) capital investment by firms with high ESG ratings is less sensitive to Tobin's Q, 4.) ESG mutual funds' capital allocation decisions are not sensitive to the MRPK of their portfolio firms. Motivated by these facts, I structurally estimate a dynamic investment model featuring convenience yields on ESG assets and a CO2 externality. I use the model to explore the implications of ESG investing for capital misallocation, aggregate total factor productivity, and climate change mitigation.



• "Explaining Prices" (with Sebastian Hanson and Hanno Lustig)


• "The Term Structure of Transition Risk" (with Florian Fiaux)