Research

Decrypting the Digital Economy: The Digital Alpha and Its Origins


I study the stock market consequences of digitalization. I propose a novel dynamic measure of digitalization that holistically captures a firm's exposure to computers, data analytics, and programming. I find that digital firms, compared to non-digital firms, have annual realized excess returns which are 6.5% higher over the past two decades. This digital alpha does not appear to be explained by well-known stock return predictors nor firm characteristics. Instead, these excess returns are concentrated in firms which focus on users - where the alpha rises to 9.0% - and are consistent with a sociological and risk-based explanation.

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What Is the "Hot Wire" When the World Goes Online? Evidence From COVID-19

(draft available upon request)

The COVID-19 crisis catalyzed a shift from the offline world to the online world. I study how two facets of digital preparation - digitalization in the production process and user focus at the consumer end - affect COVID-19's impact on firms. I find that when firms are more digital, being user-focused has a greater positive impact on stock returns, return on assets, and general search interest in the months following COVID-19's arrival. These results are driven by the intersection of digitalization and user-focus, thus the "hot wire" includes both facets.

Are ESG Scores a Club?

(draft available upon request)

Yes. I document that upwards of 40% of public firms in the U.S. do not have any ESG scores. Smaller or more financially constrained firms are less likely to receive scores. Yet the benefits of being a part of the ESG club are real: first-time joiners enjoy higher employment, sales, and investment, as well as lower leverage and financial constraints. In contrast, when peers of a small, excluded firm join the ESG club, the focal firm is likely to experience a temporary tightening of financial constraints. Hence ESG scores act as a club, benefiting included firms to the detriment of excluded firms. 

Is International Ecological Debt a Boomerang?

Import penetration into the US manufacturing sector has doubled to 32% from 1989 to 2018. Yet exporting this consumption of the environment to other countries is not a free lunch. An increasingly global supply chain brings new risks: exporter countries will eventually be reluctant to continue trading their environment for economic gain. I quantify how this type of foreign environmental risk flows through supply chains to US industries.

Digital Firms’ Financial Needs and Their Financing Strategy

Digital firms are more financially constrained. While institutional ownership helps alleviate these constraints, it is not a panacea for digital firms. During crises, there is a disproportionately large and sudden outflow from long-horizon (“dedicated”) institutional owners’ holdings of digital firms. I study how digital firms choose to cater towards institutional investors.

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