Thirsty for Returns? The Impact of Water Risk on the Global Stock Market
with Romulo Alves, Eline ten Bosch, Mathijs van Dijk, Marloes Hagens
Firms central to future economic growth—those underpinning global energy, information, and food systems—are heavily reliant on water availability within their supply chains. As water resources come under increasing stress from economic expansion, population growth, and climate change, local disruptions can propagate through supply networks and generate global economic consequences. To examine whether investors price this risk, we develop a novel water stress metric that combines corporate water use data with NASA satellite measures of local water level fluctuations. We find that stocks of firms more water-dependent than their industry peers earn 2.15% higher returns, with the effect concentrated in supply chain water use, which accounts for roughly 80% of total corporate demand. Furthermore, in the most water-dependent industries, firms operating in locations experiencing declining water levels earn a return premium. These results suggest that investors recognize water scarcity as a systematic, non-diversifiable risk.
The Water Home Bias
Single-authored
This paper studies how institutional investors incorporate water scarcity into their portfolio decisions for domestic and foreign firms. While traditional literature documents a persistent home bias, I explore its limits when local investments threaten critical resources. I examine how proximity to environmental risk may shift investor behavior: at what point does home overweighting give way to underweighting in response to local water scarcity? I consider how information asymmetries about local water conditions and engagement opportunities as alternatives to divestment can influence allocative decisions. This research contributes to climate risk and behavioral finance literatures.
Firm Financing and Investment Efficiency on the Amsterdam Stock Exchange; 1881-1940
with Abe de Jong, Pieter Drok, Josef Lilljegren
This paper studies the efficiency of capital allocation among exchange-listed firms in The Netherlands between 1881 and 1940. We investigate sources of investment funding by Dutch corporations, including internal cash flows, public funding via the stock exchange, and private funding by investors and intermediaries. We measure the efficiency of allocating capital and investments using investment-cash flow sensitivity models, where we control for firm growth opportunities. For identification purposes, we utilize shocks to external financing (temporary stock market closure in 1914 and banking crisis in 1923) to determine whether limited access to external funds affected investment behavior. We find that the Amsterdam Stock Exchange only played a minor role in total financing of Dutch firms between 1881 and 1940, but firm internal funding is the key source of financing.
Thalassa de Waal 