Job Market Paper

Decrypting the Digital Economy: The Digital Alpha and Its Origins


Finalist, European Investment Forum Research Prize (2021)
Presentations: Nova PhD Countdown, HEC Brownbag, FMA 2021, SGF Conference 2022 (scheduled)
Invited: UBS London Quantitative Research Conference 2022 (scheduled)

Abstract

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 such as age, size, profitability, or R&D intensity. Instead, the digital alpha is concentrated in firms which focus on users, a historically neglected party in the production-consumption chain. User-centricity complements digitalization within firms. The digital alpha rises to 9.0% for user-focused firms. I conclude that this figure likely compensates for risk, as user-focused digital firms have greater systematic risk.

Work in Progress

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.

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.

Is Climate Change Disclosure Informative?

I use textual analysis to examine firms’ climate change disclosure in their annual 10-K reports. Climate change disclosure is increasing over time and not concentrated in specific industries. Through event studies, I find that climate change disclosure may be more informative for market participants during rollbacks - instead of new proposals - of climate change policies.

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