Our paper analyzes whether a planner should design a taxonomy for sustainable investment products when conventional tools for environmental regulation can also be used to address externalities arising from firm production. We first show that the private market provision of ESG funds marketed to retail investors involves greenwashing , so that a mandatory taxonomy is necessary to generate real effects of sustainable finance . However, the introduction of such a taxonomy can only improve welfare, on top of optimally chosen environmental regulation, if financial frictions constrain socially valuable economic activity. Otherwise, environmental policy alone is sufficient to optimally address externalities

We propose a statistical methodology for jointly estimating the pricing kernel and conditional physical return densities from option prices. Pricing kernel estimates show that negative stock market returns are significantly more painful to investors in low-volatility periods. Density estimates reflect a significantly positive risk–return trade-off, suggest that Martin’s (2017) lower bound on the equity premium is violated in high-volatility periods, and provide new evidence on the variance premium’s predictive power for excess returns as well as the co-movement between higher return moments. Lastly, we show that leading macrofinance models are at odds with basic features of conditional stock market risks and risk pricing.

We use Swedish administrative data to study the role of unemployment risk in salaried employees’ decisions to become entrepreneurs. Using the 2001 relaxation of Sweden’s last-in-first-out (LIFO) dismissal rule as an exogenous shock to unemployment risk, we find that employees facing increased unemployment risk are more likely to become entrepreneurs. The effect is more pronounced for employees with longer tenure, as they were newly exposed to greater unemployment risk. When we track entrepreneurs’ income dynamics and the performance of their ventures, we find that entrepreneurs who used to face greater unemployment risk do not underperform compared to other entrepreneurs. Our results provide some of the first empirical evidence of how employees respond to increased unemployment risk.

Platform intermediation of goods and services has considerably transformed the U.S. economy. We use administrative data on U.S. tax returns to study the role of the gig economy on entrepreneurship. We find that gig workers are more likely to become entrepreneurs, particularly those who are lower income, younger, and benefit from flexibility. We track all newly created firms and show that gig workers start firms in similar industries as their gig experience, which are less likely to survive and demonstrate higher performance. Overall, our findings suggest on-the-job learning promotes entrepreneurial entry and shifts the types of firms started by entrepreneurs.

Open banking (OB) empowers bank customers to share their financial transaction data with fintechs and other banks. New cross-country data shows 49 countries adopted OB policies, privacy preferences predict policy adoption, and adoption spurs fintech entry. UK microdata shows that OB enables: (i) consumers to access both financial advice and credit; (ii) SMEs to establish new lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits.

We study information sharing between strategic investors who are informed about asset fundamentals. We demonstrate that a coarsely informed investor optimally chooses to share information if his counterparty investor is well informed. By doing so, the coarsely informed investor invites the other investor to trade against his information, thereby reducing his price impact. Paradoxically, the well informed investor loses from receiving information because of the resulting worsened market liquidity and the more aggressive trading by the coarsely informed investor. Our analysis sheds light on phenomena such as private communications among investors and public information sharing on social media.

We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. The survey elicits investors’ expectations of long-term ESG equity returns and asks about their motivations, if any, to invest in ESG assets. We document four facts. First, investors generally expected ESG investments to underperform the market. Between mid-2021 and late-2023, the average expected 10-year annualized return of ESG investments relative to the overall stock market was −2.1%. Second, there is substantial heterogeneity across investors in their ESG return expectations and their motives for ESG investing: 48% of survey respondents do not see any reason to invest in ESG, 24% are primarily motivated by ethical considerations, 22% are driven by climate hedging motives, and 6% are motivated by return expectations. Third, there is a strong link between individuals’ reported ESG investment motives and their actual investment behaviors, with the highest ESG portfolio holdings among individuals who report ethics-driven investment motives. Fourth, financial considerations matter independently of other investment motives: we find meaningful ESG holdings only for investors who expect these investments to outperform the market, even among those investors who reported that their most important ESG investment motives were ethical or hedging reasons.

Using daily banking and credit card data for thousands of households linked to U.S. publicly listed employers, we find novel evidence that firm-specific uncertainty persistently reduces future spending and spurs precautionary savings. A one-standard-deviation rise in option-implied firm volatility—akin to the S&P 500 VIX—predicts a $106 monthly spending drop (8 hours of wages) and a $193 increase in bank balances, reflecting notable cutbacks in typical non-durable goods and services. The mechanism operates through heightened household risks: firm uncertainty expands both income and consumption risk over the next year, with the largest effects among lower and top earners (notably the top 1%). Employers only partly shield earnings, while households only partly self-insulate consumption risk via smoothing channels. Detrimental uncertainty effects on households are stronger than firm stock price declines.

We develop a market-based methodology to assess banks’ resilience to climate-related risks and study the climate-related risk exposure of large global banks. We introduce a new measure, CRISK, which is the expected capital shortfall of a bank in a climate stress scenario. To estimate CRISK, we construct climate risk factors and dynamically measure banks’ stock return sensitivity (that is, climate beta) to the climate risk factor. We validate the climate risk factor empirically and the climate beta estimates by using granular data on large US banks’ loan portfolios. The measure is useful in quantifying banks’ climate-related risk exposure through the market risk and the credit risk channels.