Julia Selgrad

We propose a new methodology to build portfolios that hedge the economic and financial risks from climate change. Our quantity-based approach exploits information on how mutual fund managers trade in response to idiosyncratic changes in their climate risk beliefs. We exploit two types of idiosyncratic belief shocks: (i) instances when fund advisers experience local extreme heat events that are known to shift climate change beliefs, and (ii) instances when fund managers change the language in shareholder disclosures to express concerns about climate risks. We use the funds’ observed portfolio changes around such idiosyncratic belief shocks to predict how investors will reallocate their capital in response to aggregate climate news shocks that shift the beliefs and asset demands of many investors and thus move equilibrium prices. We show that a portfolio that is long stocks that investors tend to buy after experiencing negative idiosyncratic climate belief shocks, and short stocks that investors tend to sell, appreciates in value in periods with negative aggregate climate news shocks. Our quantity-based portfolios have superior out-of-sample hedge performance compared to portfolios constructed using existing alternative methods. The key advantage of the quantity-based approach is that it learns from rich cross-sectional trading responses rather than time-series price information, which is particularly limited in the case of newly emerging risks such as those from climate change. We also demonstrate the versatility of the quantity-based approach by constructing successful hedge portfolios for aggregate unemployment and house price risk.

Best Paper in Asset Pricing, SFS Cavalcade 2022; Two Sigma Award for Best Paper on Investment Management, WFA 2022; ICPM Research Award, International Centre of Pension Management 2023

We study how monetary policy affects corporate investment decisions and why there are long lags in transmission. We hand-collect a firm-level dataset of U.S. investment plans, which strongly predict realized investment and let us observe decisions separately from implementation. We find that plans respond to monetary policy differentially across horizons: long-horizon plans are more sensitive than near-term plans. Consistent with capital production frictions, plans for new projects respond more than plans for ongoing projects. Implementation lags thus help explain the long lags in monetary transmission. We document evidence of financing cost and cash-flow expectations channels.

Best Paper in Corporate Finance, SFS Cavalcade 2026; Wharton School – WRDS Award for Best Empirical Finance Paper, WFA 2026

The Fed argues that quantitative easing (QE) lowers yields across asset markets via the portfolio rebalancing channel. I provide a direct test for this channel, quantify its magnitude, and document its real effects. I first construct a novel QE shock measuring the unexpected amount that the Fed purchases of each Treasury during each QE operation. Combining this shock with holdings data, I find that investors rebalance 75% of proceeds from QE-induced Treasury sales into corporate bonds, predominantly into bonds with similar maturities to those the Fed purchased. Consistent with the portfolio rebalancing channel, the yields of these bonds fall. To quantify the channel’s magnitude, I use my reduced-form estimates to calibrate a preferred habitat model with investors who substitute between Treasurys and corporate bonds. I find a large effect: Treasury purchases amounting to 1% of GDP lower corporate bond yields by 29.3bps on impact. Turning to real effects, I find that affected firms increase bond issuance and do so at lower yields, and subsequently increase their investment. Overall, the results point to a strong portfolio rebalancing channel. 

Top Finance Graduate Award, HEC Paris 2024; ECB Young Economist Prize Finalist 2024; The Brattle Group Prize, WFA 2024