Publications
November 2026, Journal of Econometrics
Multivariate inference for dynamic systemic risk measures
Yuan Chen, Nikolaus Hautsch, Jérémy Leymarie, Melanie Schienle
Abstract: This paper provides statistical inference for marginal expected shortfall (MES) and delta conditional value-at-risk (ΔCoVaR) measures, which are semiparametrically estimated by a two-step procedure in a multivariate GARCH-type framework. We establish the asymptotic properties of corresponding estimators and illustrate how the estimation uncertainty can be decomposed into dynamic univariate marginal and time-varying dependence components. Our methodology reveals good finite sample performance for estimation and prediction of risk. Moreover, we propose tests for differences in systemic risk in order to construct confidence sets for companies’ ranks in systemic risk rankings. In an empirical application based on 50 large US financial institutions, our framework provides novel evidence on the informativeness of such rankings. Moreover, our findings highlight the importance of accounting for time-varying return dependence in systemic risk estimators.
June 2026, Energy Economics
Do sustainability-linked bonds reward greater sustainability by design?
An Chen, Maria Hinken, Gunter Löffler
Abstract: Sustainability-linked bonds (SLBs) are a new financial instrument designed to create incentives for sustainable behavior on the part of the issuing companies or institutions. SLBs feature increased coupon payments if key performance indicators do not reach sustainability performance targets. In a standard pricing framework, we find that fair issue yields of SLBs, and hence their financing costs, are non-monotonic in the planned sustainability performance and the ambition of the sustainability targets. As a result, issuers that commit themselves to greater sustainability are not always rewarded through a lower issue yield, and increasing the ambition of the sustainability target has ambiguous effects. The rewards that the SLB offers over its lifetime through a reduction of penalty payments are also non-monotonic. They tend to go to zero if the target is made very ambitious.
Forthcoming, Schmalenbach Journal of Business Research · Special Issue: Regulatory Uncertainty
Regulatory Uncertainty: Asset Allocation and Asset Pricing
Nicole Bäuerle, Nicole Branger, An Chen, Monika Gehde-Trapp, Antje Mahayni, Melanie Schienle, Caren Sureth-Sloane
Abstract: Regulatory uncertainty is a central channel through which policy affects financial decisions. We develop a programmatic conceptual framework for studying regulatory uncertainty in asset allocation and asset pricing. We define regulatory uncertainty as uncertainty about the design, timing, implementation, interpretation, and enforcement of regulations that directly shape cash flows, feasible actions, institutional constraints, and market expectations. This perspective distinguishes regulatory uncertainty from broader economic policy uncertainty by focusing on regulations, regulatory parameters, and enforcement practices rather than on policy uncertainty in general. The framework identifies four main entry points into financial models: cash-flow dynamics, beliefs and learning, regulatory constraints including tax constraints, and intermediary capital and liquidity constraints. It also clarifies when regulatory uncertainty is merely reflected in expected cash flows and when it commands a risk premium. We illustrate the framework in selected domains in which regulatory uncertainty is economically important: financial regulation, climate policy, taxation, and insurance. We thereby provide a common language for connecting theoretical modeling, measurement, and empirical analysis of regulatory uncertainty and for deriving implications for investors, firms, intermediaries, and regulators.
May 2026, Finance Research Letters
When do sustainability–linked bonds lower default risk? A correlation threshold
An Chen, Maria Hinken, Gunter Löffler
Abstract: Issuers of sustainability-linked bonds (SLBs) face higher coupons or other negative consequences if a key performance indicator misses a sustainability target. Within a Merton-type model, we derive closed-form default probabilities for debt structures that incorporate SLBs and compare these probabilities to those associated with conventional debt. The comparison yields a critical correlation threshold ρ∗: If the correlation between asset values and the key performance indicator exceeds ρ∗, the SLB strictly lowers default risk. In typical cases that we examine, the correlation threshold is close to zero, and changes in default probabilities are rather small.
December 2025, International Tax and Public Finance
How much to pay for tax certainty? The role of advance tax rulings for risky investment under loss offset and tax uncertainty
An Chen, Peter Hieber, Caren Sureth-Sloane
Abstract: This study examines the impact of tax certainty through advance tax rulings (ATRs) on firms’ risky investments under cash flow and tax uncertainty. Both firms and governments have expressed growing concern about increasing tax uncertainty, due to frequent tax reforms and the difficulty in applying ambiguous tax laws and anticipating audit outcomes. One remedy is the provision of ATRs, which offer upfront clarification of tax issues to reduce tax uncertainty and increase risk-taking. We analyze how these uncertainties, along with different tax rates, loss offset provisions, and ATR fees affect investment strategies. Our results suggest, first, that ATRs encourage riskier investments, particularly in tax regimes with generous loss offsets. We identify optimal ranges of ATR fees that benefit firms and tax authorities. Second, we show that it may be beneficial to design ATRs with a low or negative fee. Third, our study reveals a U-shaped relationship between firms’ risk aversion and their willingness to pay for tax certainty, with willingness being higher for firms at low or high levels of risk aversion. In contrast, moderately risk-averse firms are only willing to accept low fees. Overall, our results highlight the importance of low-cost tax certainty combined with generous loss offset provisions to encourage risky investments.
December 2025, The Annals of Applied Statistics
Simple macroeconomic forecast distributions for the G7 economies
Friederike Becker, Fabian Krüger, Melanie Schienle
Abstract: We present a simple method for predicting the distribution of output growth and inflation in the G7 economies. The method is based on point forecasts published by the International Monetary Fund (IMF) as well as robust statistics from the empirical distribution of the IMF’s past forecast errors while imposing coherence of prediction intervals across horizons. We show that the technique yields calibrated prediction intervals and performs similar to, or better than, more complex time series models in terms of statistical loss functions. We provide a simple website with graphical illustrations of our forecasts as well as time-stamped data files that document their real-time character.
August 2025, Energy Economics
Optimizing portfolios under carbon risk constraints: Setting effective constraints to favor green investments
An Chen, Leonard Gerick, Zhuo Jin
Abstract: Climate change and its concomitant adaptations pose significant challenges for companies and confront them with new risks. Investors must consider these risks when shaping their investment portfolio. This study investigates portfolio optimization under a carbon risk constraint in an expected utility framework. To illustrate the implications of the carbon risk constraint, we consider a financial market with only one risk-free and two risky assets, one green and one brown. We identify conditions under which the imposition of the carbon risk constraint leads to an increase in the green investment and a decrease in the brown investment. Surprisingly, an increased investment in the brown asset can also be optimal under certain conditions. Further, we employ different carbon risk metrics, such as carbon intensity and Brown-Green-Score, to compare the resulting optimal portfolios.