• Research

    • Monopoly Power in the Oil Market and the Macroeconomy

      Energy Economics 85, 2020 (in press)

      with Nicole Branger, Nikolai Gräber

      Abstract: This paper studies macroeconomic consequences of oil price shocks caused by innovations in the monopoly power in the oil market. Monopoly power is interpreted as oil producers' ability to charge a markup over marginal costs. We propose a novel way to identify markup shocks based on meetings of the OPEC and show their unique macroeconomic consequences compared to supply and demand shocks. In particular, global real economic activity persistently expands when oil producers' monopoly power rises. A general equilibrium model suggests that higher monopoly profits attract investments in oil producing capital which drive down marginal costs and stimulate economic growth.

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    • Jumps and the Correlation Risk Premium: Evidence from Equity Options

      with Nicole Branger, Frederik Middelhoff

      Abstract: This paper breaks the correlation risk premium down into two components: a premium related to the correlation of continuous stock price movements and a premium for bearing the risk of co-jumps. We propose a novel way to identify both premiums based on dispersion trading strategies that go long an index option portfolio and short a basket of option portfolios on the constituents. The option portfolios are constructed to only load on either diffusive volatility or jump risk. We document that both risk premiums are economically and statistically significant for the S&P 100 index. In particular, selling insurance against co-jumps generates a sizable annualized Sharpe ratio of 0.85.

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    • Industry Returns in Global Value Chains: The Role of Upstreamness and Downstreamness

      with Nicole Branger, Steffen Windmüller

      Abstract: This paper studies how upstreamness and downstreamness affect industry returns in global value chains. Up- and downstreamness measure the average distance from final consumption and primary inputs, respectively, and are computed from world input-output tables. We show that downstreamness is a key driver of expected returns around the globe, whereas upstreamness is not. Industries that are farthest away from primary inputs earn approximately 5% higher returns per year than industries that are closest. The effect is found within countries and business sectors and suggests that investors perceive supplier-dependence in global value chains as an important source of risk.

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