Skills and Sentiment in Sustainable Investing (with Alexander Kronies), Available at SSRN.

Awarded: Best Paper at the 2nd Conference on Behavioral Research in Finance, Governance, and Accounting (BFGA 2020).

Presented at: BFGA 2020, PhD Symposium of the 32nd Northern Finance Association Conference (NFA 2020), 19th Conference on Credit Risk Evaluation (CREDIT 2020), Becker Friedman Institute Macro-Finance Research Program Summer Session for Young Scholars (MFR 2020), Wharton PhD Brown Bag Series.

Podcast: Rig på viden (In Danish).

Press: CAIA Association.

We document a positive ESG premium among stocks with a low degree of ESG-motivated investor ownership. ESG-motivated investors buy ESG stocks giving them high ex-ante but low ex-post abnormal returns. We show that a theory of sustainable investing with heterogeneous skill and sustainability sentiment can explain this finding. In support of this explanation, we find in the cross-section that a low degree of ESG-motivated ownership leads to future ESG score increases. The premium is stronger during periods of high climate sentiment and risk aversion as in the crisis.

Very excited that our work has been featured by the blog of CAIA -- the credentialing body for investors with a focus on Alternative Investment and Ethics! Our work asks what effect the increased interest in ESG has had on returns? https://t.co/IjlLeO4yOY

— Andreas Brøgger (@AndreasBrogger) July 26, 2020

Macroprudential Buffers: Trading Systemic Risk for Risk Premia, Available at SSRN.

Presented at: Wharton School at the University of Pennsylvania, PhD Nordic Finance Workshop, Poster Session at American Finance Association Annual Meeting (AFA), Copenhagen Business School.

I document that equity prices fall as macroprudential buffers are announced. This is consistent with macroprudential buffers leading to an increase in risk premia, from a heightened price of risk. Theoretically, I develop a model that predicts that as buffers are announced 1) The price of risk increases, 2) Systemic risk falls, and 3) Intermediaries' risky asset allocation decreases, as other agents with higher risk aversion increase their portfolio weights in the risky asset. Empirically, I find evidence consistent with the first and third prediction. The second remains a testable implication of my model. In summary, this paper sheds light on the equilibrium effects of implementing new financial regulation on asset prices and systemic risk.

Identification and Assessment of Systemic Risks in Financial Networks: Modelling Fire Sales from Regulatory Cliff Effects, Danmarks Nationalbank Working Paper, Number 117.

Presented at: Financial Management Association (FMA) Europe (University of Agder), RiskLab (Bank of Finland), Bank of England, Copenhagen Business School, Lund University, Nykredit A/S, Danmarks Nationalbank.

Press: Finans, FinansWatch, Danmarks Radio, Danmarks Nationalbank.

This paper investigates fire sales triggered by regulatory cliff effects induced by the loss of Capital Requirements Regulation (CRR) compliance on covered bonds. The loss of CRR compliant status leads to banks holding these covered bonds to lose several regulatory advantages, one consequence being a lower solvency. In our analysis, following the loss of CRR compliance, banks sell off their covered bonds in a fire sale, in an attempt to return to their initial solvency, resulting in losses of equity for the system as a whole. Further, we find that, for price impacts larger than a critical threshold, even small shocks lead to explosive fire sales and large losses of equity. While these losses can be averted if the banks allow their solvency levels to fall temporarily, other regulations, such as those relating to large exposures to other banks, could still trigger similar fire sales.