Giovanni Walter Puopolo

Does the market reward for going green

Purpose – The purpose of this paper is to investigate the effects of the application of green standards on the companies’ financial returns. It aims at answering the following question: does the market reward or penalize the players that carry out responsible management policies toward environment? Design/methodology/approach – Using US data from 2009 to mid-2014 and employing two financial models, that is Capital Asset Pricing Model and Fama-French three-factor model, the authors first estimate the extra remuneration provided to investors. Then, the authors link this extra return to a green-based factor. The green-factor data are taken from Newsweek Green Rankings, which annually publishes an environmental ranking of the 500 biggest publicly traded companies in the USA. Findings – The analysis demonstrates that there exists no linear relationship between the adoption of green standards and financial returns, i.e. the “green-behavior” does not affect the remuneration required by investors. These results c...

Portfolio selection with transaction costs and default risk

I propose a simple consumption/investment problem with transaction costs and default risk. When default occurs, I assume the value of the risky asset drops to zero and the investor receives the terminal wealth only in the form of the other (riskless) security. I show that default risk can generate a first-order effect on the investor’s asset allocation. On the contrary, the liquidity premium is one order of magnitude smaller than the transaction costs, implying that the additional source of risk determined by the possibility of default is not able to generate a first-order effect on asset pricing.

The Dynamics of Tobin's Q

In this paper I propose a general-equilibrium model with proportional adjustment costs and industry-specific capital to study the firm migration phenomenon across market-to-book ratio. In my model, investors’ desire to diversify their portfolios and investment frictions generate a mean-reverting dynamics of Tobin’s q consistent with the probabilities of migration found in the data, and a nonlinear pattern in the conditional volatility of Tobin’s q. In addition, since firms’ market-to-book ratios are function of the state of the economy and contain information about stock returns, stock prices inherit these properties, yielding asset-pricing implications in line with the empirical evidence, namely the value premium and a non-monotone relationship between the volatility of stock returns and the Tobin’s q.

Economic Activity and Credit Market Linkages: New Evidence From Italy

We investigate the interactions between the business cycle and credit markets in Italy, focusing on how macroeconomic shocks affect the banking sector (i.e. the real effect) and in turn how the financial system’s reaction influences the economic activity (i.e. the feedback effect). We find evidence of both effects, with the former conveyed primarily by the creditworthiness of large firms. Moreover, using data from the Bank Lending Survey provided by the ECB, we disentangle credit supply shocks due to factors inside the banking sector (the bank lending channel), from those outside the banking sector (the borrower’s balance-sheet channel), finding that both types of shocks have a significant impact on the real economy. Our results have far reaching implications for financial stability.

Business Cycle and Credit Cycle: New Evidence in Italy

We investigate the relationship between the business cycle and the credit cycle in Italy, focusing in particular on the real and the credit channel. We find evidence of both effects, with the former conveyed primarily by the creditworthiness of large firms. Moreover, using data from the Bank Lending Survey provided by the ECB, we disentangle supply shocks from demand shocks by separating the shifts originated by factors inside the banking sector (the bank lending channel), from those originated by factors outside the banking sector (the borrower’s balance-sheet channel), finding that both types of shocks have a significant impact on the real economy. Our results have far reaching implications for financial stability.