Articles

Green Gains: The Impact of REITs’ Environmental Performance on Sustainability-Linked Loan Interest Rates

With Tanja Artiga Gonzalez, Egle Karmaziene and Xin Yuan (2025) Finance Research Letters, 71

This paper examines the relationship between environmental performance and the use of sustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find that a 1% reduction in past carbon emissions increases the REITs’ likelihood of taking an SLL by 29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basis points. Our results reveal that banks reward REITs’ previous environmental record through SLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore the importance of explicit sustainability-linked financial instruments in incentivizing decarbonization efforts within the real estate sector.

Nonstandard Errors

(With Albert Menkveld, Anna Dreber, Felix Holzmeister and 339 others) (2024) Journal of Finance, 79: 2339-2390.

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable but smaller for more reproducible or higher-rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.

Measuring systemic risk in the Colombian financial system: A systemic contingent claims approach

With Gomez, E., Laverde, M., Morales-Mosquera M. A. (2013) Journal of Risk Management in Financial Institutions Volume 6, Issue 3, 253-279.

Working papers

Bank Climate Commitments and the Geography of Cross-Border Lending

With Tanja Artiga-Gonzalez.

Journal of Banking and Finance (Under Review)

This paper examines how banks’ public climate commitments—specifically, membership in the Net-Zero Banking Alliance (NZBA)—affect the composition and geography of cross-border syndicated lending. We use granular loan-level data and a staggered difference-in-differences approach to analyze changes in lending behavior following NZBA membership. We document three main findings. First, green lending increases after NZBA membership, but this growth is concentrated in advanced economies. It is often accompanied by a substantial decrease in conventional lending to green sectors, suggesting a shift in instruments rather than an expansion of climate-aligned finance. Second, cross-border green lending to emerging and developing economies declines, even among NZBA banks headquartered in those regions. Third, NZBA banks become more selective in their lending after joining the alliance, reducing the number of deals and focusing more on clients in advanced economies. These results suggest that while NZBA commitments help banks “green” their domestic portfolios, they may also reinforce global disparities in sustainable finance by reallocating both green and conventional lending away from less developed markets.

Revisiting EWMA in High-Frequency Portfolio Optimization: A Comparative Assessment

With Anne Opschoor

Status: RR. Journal of Applied Econometrics

This paper compares the statistical and economic performance of state-of-the-art multivariate volatility models based on high-frequency data with a simpler, widely used alternative—the Exponentially Weighted Moving Average (EWMA) filter, also incorporating high-frequency data. Using over two decades of 100 U.S.~stock returns (2002–2023), we assess model performance through a Global Minimum Variance portfolio optimization exercise across various forecast horizons. We assess outcomes based on ex-post realized portfolio volatility and the expected utility of a risk-averse investor. We find that the EWMA model consistently outperforms more complex HF-based volatility models, delivering significant economic gains when including transaction costs, due in part to its lower turnover. Even in the absence of transaction costs, EWMA remains dominant in most cases; the modest gains offered by alternative models are confined to specific scenarios involving high market volatility and small portfolio sizes. Our results are robust to various dimensions, including no-short-selling constraints, varying portfolio sizes, and alternative parameter choices, highlighting the continued relevance of the EWMA model in high-frequency-based portfolio allocation.

Estimating Welfare Effects of Interest Rate Caps in Micro-Lending: A Structural Approach with Geographic Implications.

Status: RR. Journal of Empirical Finance.

Interest rate caps are a widely used policy tool intended to protect consumers from excessive charges by loan providers. However, they are often cited as a barrier for the development of credit services for low-income borrowers, as they make riskier borrowers unprofitable and reduce the incentives to invest in branching networks, particularly in remote and isolated locations. In this paper, I exploit a change in the usury ceiling applied to micro-loans in Colombia to understand the effects of this policy across geographic markets. To quantify the welfare implications of this policy, I structurally estimate a demand and supply model that incorporates the changes in size and composition of the potential market caused by the policy change in a context where the distribution of branching networks has a crucial role in the optimal pricing strategies of loan providers. I find that the policy generated an increase in consumer surplus at the national level, which is explained by greater credit availability for riskier borrowers and the expansion of branching networks in areas that were previously under-served. A counterfactual exercise reveals that the welfare gains associated with this policy depend greatly on additional investment in branching networks, as they help to compensate for the consumer welfare loss associated with the subsequent increase in interest rates after the relaxation of the ceiling.

DIGITAL DISRUPTION IN U.S. MORTGAGE MARKETS: FINTECH’S LOCAL IMPACT ON ACCESS AND COMPETITION

The U.S. mortgage industry has experienced a rapid transformation, with an increasing number of lenders adopting technological innovations that allow potential borrowers to complete their mortgage application process online, reducing the need for face-to-face interaction with loan officers. The market share of financial institutions offering this type of service has increased significantly in recent years, reaching 9.5% of the originations in 2017. This paper examines the response of incumbent mortgage lenders to the advent of this technology. I find that the increased availability of lenders providing online mortgages has had a differentiated impact on the volume of applications and loan originations for incumbent providers, depending on their size. The results suggest that local lenders are better able to differentiate from FinTech institutions by offering services that are appealing to some segments of borrowers. By contrast, mortgages provided by FinTech seem to be a closer substitute for the services provided by large financial institutions.

The interaction between microfinance institutions and traditional banks in rural markets. Evidence from Colombia

In recent years, microfinance institutions (MFIs) have undergone a transition from non-profit organizations into regulated (for-profit) financial establishments, transforming their competitive interaction with formal loan providers in local markets. While the new scenario could be characterized by increased business stealing between the two types of competitors, MFIs might also create positive spillovers on mainstream financial institutions due to market expansion and information sharing. These spillovers may have an impact on entry decisions in local markets, with considerable implications on market power and consumer welfare. I use a structural model to identify the effects of entry on the overall profit and the stock of loans provided by incumbents of different types in small, isolated markets in Colombia. I evaluate different assumptions on the interaction across types of loan providers, finding positive and significant spillovers between banks and MFIs. I find important asymmetries in the competitive interaction across different types of loan providers. The presence of MFIs has a positive impact on the profit of mainstream institutions, which is partially explained by market expansion in the loans market. By contrast, MFIs do not seem to benefit significantly from the presence of mainstream institutions. This result is relevant for the design of policies that attempt to increase the supply of financial services in isolated markets.

Book Chapters

Competencia en el Mercado del Microcrédito en Colombia.

In Estrada, D. Yaruro-Jaime, A. M., Clavijo Ramirez, F., Capera Romero, L. (2022) El Desarrollo del Microcrédito en Colombia. Banco de la República.

[Spanish version here]

[English version here]

RELACIONES CREDITICIAS Y RIESGO DE CONTAGIO EN EL MERCADO INTERBANCARIO NO COLATERALIZADO COLOMBIANO

With Lemus-Esquivel, Juan Sebastián and Estrada, Dairo, (2015) ch. 18, p. 559-616 in Gómez-González, José Eduardo and Ojeda-Joya, Jair N. eds., Política Monetaria y Estabilidad Financiera en Economías Pequeñas y Abiertas, Banco de la Republica de Colombia.