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.
Tilting with the Tide – Portfolio Allocation under Water Scarcity
Single-authored
Investors typically overweight domestic equities, reflecting a persistent home bias. But what happens when these preference generate local economic costs? I study firms that exacerbate scarcity of a vital, non-substitutable resource—water. Here, domestic investors face a trade-off: maintain home-biased allocations or reduce investments to limit the negative local externalities of scarcity. I show that institutional holdings are negatively associated with water scarcity. Domestic investors’ holdings are more strongly associated with scarcity at home than abroad, while the opposite is true for foreign investors. These patterns indicate that investors’ proximity to scarcity is reflected in portfolio allocation and support the idea that institutional investors tilt away from firms that exacerbate local water scarcity. Local scarcity risks can reverse the traditional home bias, demonstrating how increasing resource pressures may shape global investment patterns.
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 