Equity Flows in Uncertain Times: the Role of Heterogeneous Information (with F. Beraldi and C. Yang)

This paper investigates the role of information heterogeneity in driving equity flows throughout the global financial cycle. In periods of heightened uncertainty, investors retrench from most of foreign markets while maintaining investment in information-advantaged economies, particularly in the United States. We develop a multi-country model with endogenous information acquisition and heterogeneous learning costs, which generates three key predictions in uncertain times: (i) domestic investors become relatively better informed; (ii) aggregate foreign equity inflows fall where domestic agents hold an informational advantage; and (iii) investors reallocate toward markets they understand better. We validate these predictions using Consensus Economics forecasts and both aggregate and bilateral equity inflows. Higher uncertainty widens information asymmetries and leads to weaker foreign inflows where domestic precision improves, while capital shifts toward destinations that are easier to learn about.

Customer Capital and the Aggregate Effect of Short-Termism (with M. Errico and L. Pollio)

Managers face strong pressure to meet analysts’ earnings forecasts, but the effects on firms and consumers are ambiguous. In the data, firms that just meet earnings forecasts raise markups by 1.3 percent and report weaker customer sentiment than those that just miss, consistent with short-term incentives distorting both short-run pricing decisions and long-run customer acquisition. We develop a dynamic general equilibrium model with heterogeneous firms and endogenous customer accumulation, where short-term incentives emerge endogenously as an optimal mechanism to discipline managers’ private benefit. We estimate that short-termism leads the average firm to raise markups by 20 basis points and annual profits by 1.2 percent. Consumers experience a 7-basis-point annual increase in consumption and a 1.2 per-cent gain in lifetime utility, as income effects outweigh the welfare costs of higher prices.

The Propagation of Environmental Risk Through Production Networks: Borrowing Cost Effects (with E. Luciano) 

The cost of debt for firms more exposed to transition risk has been shown to be higher than the one of less exposed firms.  To explain this difference, we develop a general equilibrium model featuring firms, banks and households. Firms are connected by a production network. Their input choices are rigid, in the sense that their decisions cannot be fully adapted to the actual risk realization.  As a consequence of rigidity, default may occur. Interest rates on corporate debt are determined by banks, taking into account possible defaults. Without connections, brown firms would face higher costs because of transition exposure. In a network, the exposure depends also on each firm's connections. Even low-emission firms are penalized when they depend on brown suppliers, as upstream risks are transmitted through the supply chain. Debt costs depend on the overall exposure to transition risks. Empirically, we proxy firms' exposure to transition risk using sectoral CO2 emissions and construct a network-based measure of total, embodied emissions that is fully consistent with the theoretical framework. Combining U.S. firm-level financial data with EPA emissions and input--output linkages, we show that lenders price both direct emissions and, crucially, network-adjusted carbon exposure, in line with the model's predictions. Evidence surrounding the Paris Agreement confirms the relevance of these mechanisms and supports a causal interpretation of the results. 

Aggregation Bias in Import Price Pass Through (with M. Klein)  

We show that the estimated degree of import price pass-through depends critically on how import cost shocks are measured. Using Swedish firm-level data, we construct a novel network-adjusted measure of effective import prices that captures both direct exposure to imported inputs and indirect exposure through production networks. Conventional aggregate import price indices average across heterogeneous sourcing structures and ignore upstream linkages, thereby providing a noisy proxy for the marginal cost shocks relevant for firms pricing decisions. We show that this aggregation bias substantially attenuates standard pass-through estimates. When import costs are measured using aggregate import price indices, pass-through appears incomplete and gradual. In contrast, the network-adjusted measure implies substantially stronger transmission, with domestic prices adjusting close to one-for-one with import costs within one year. These findings remain robust under an instrumental variable strategy based on exogenous oil supply news shocks from Kanzig (2021). Overall, the results suggest that the transmission of international cost shocks to domestic prices is stronger and more complete than previously documented once firms effective exposure to imported inputs is properly measured.