Topic: Seeing the Unobservable from the Invisible: The Role of CO2 in Measuring Consumption Risk
Speaker: Zhuo Chen, Assistant Professor, PBC School of Finance
Date: November 12th, 2014 (Wed.)
Time: 12:30-1:30pm
Location: Building 1, Room 501, Faculty Lounge
Language: English
Abstract:
Although it may be difficult for households to instantaneously adjust their stock of durable go o ds, they have much more latitude in adjusting the service flow from that stock. In contrast to past studies that assume service flow to b e a constant fraction of the stock, we model the utilization of the stock of durable goods to be time-varying. We propose an innovative measure of the unobserved usage of durable goods from carbon dioxide emissions. Emissions provide a convenient aggregation of energy consumption that has become an important complementary input for durable goods in recent decades. We find that the time-varying utilization of durable go o ds is a valid asset pricing factor. Our model exhibits a stronger cross-sectional pricing power than the CAPM and several consumption-based capital asset pricing models (CC APMs), including Yogo’s (2006) durable good model. Finally, our model mitigates the joint risk premium and implied risk-free rate puzzle.
About the speaker:
Zhuo Chen is currently an assistant professor at PBC School of Finance, Tsinghua University. Zhuo received his Ph.D. in Finance from Kellogg School of Management, Northwestern University in 2014. Before that, he earned his M.A. degree in Economics from Duke University in 2009 and dual bachelor degrees in engineering and economics from Peking University in 2007. His research interests include empirical asset pricing, with a focus on financial market frictions, financial econometrics, and quantitative portfolio management. His research has won several awards, including Chicago Quantitative Alliance (CQA) Academic Competition, PanAgora Crowell Memorial Prize Finalist, and Australasian Finance and Banking Conference PhD Forum Second Prize.
