Working Papers

A note on the relationship between electricity and natural gas prices across European markets in times of distress“(with Stephania Mosquera-López).

Comments are welcome!

We study the transmission of natural gas price shocks to electricity prices across different
scenarios of electricity generation for thirteen European electricity markets. To this end, we
propose a statistic based on the estimation of conditional quantile regression models, which
allows us to identify the most vulnerable countries in the region to variations in the global
price of natural gas, under scenarios of generation distress. We point out to market integration
and different electricity generation mixes as likely factors underlying our results. Our main
contribution is the analysis of the proposed static for the case of European markets from a
comparative perspective, which helps to guide and support timely policy responses in
European countries, aiming to isolate the most vulnerable consumers and firms from dramatic
electricity price increments as those observed in the first three quarters of 2021. The most
vulnerable countries according to our indicator are Portugal and Spain, while the most resilient
are Italy and Finland.

Vulnerable Funding in the Global Economy(with Helena Chuliá and Ignacio Garrón). IREA-University of Barcelona, 2021.

Presented at the annual meeting of the European Economic Association 2021. Submitted

We study the international propagation of financial conditions from the United States to global financial markets. The impact is highly heterogeneous alongside the quantiles of the distribution of the two major funding sources, credit and equity. Analogous to vulnerable growth episodes, there exist vulnerable funding periods of a global scale, originated from financial weakness in the US. Our estimates differentiate between first and second moment (i.e. uncertainty) shocks to financial conditions. This distinction proves to be relevant as it uncovers a complex propagation of shocks via different economic channels. We also document a heterogeneous impact across countries. In the case of credit growth this heterogeneity is better explained by the size or depth of the markets, while in the case of stock markets, the explanation is rooted in the strength of the financial connectedness with the US.

Price Bubbles in Lithium Markets Around the World” (with Natalia Restrepo and Montserrat Guillén) IREA-University of Barcelona, 2021

Comments are welcome!

The global energy transition to low-carbon technologies for transportation is heavily dependent on lithium. By leveraging the latest advances in time series econometrics we show that lithium prices (carbonate and hydroxide) have recently experienced market bubbles, particularly from the end of 2015 to the end of 2018, although in the case of European hydroxide we also date a bubble as recently as September 2020. Bubbles are accompanied by market corrections and extreme uncertainty which, in the case of lithium, may put at risk the future continuous supply needed for manufacturing lithium-based batteries for the electric vehicle. Governments and private stakeholders could reduce uncertainty imposed by these speculative dynamics, for instance, by establishing public stabilization funds and setting up capital buffers that help to diversify operational and market risks induced by a bubble bursting. Such funds should be ideally located in portfolios, such as the global stock markets or other energy commodities, which exhibit idiosyncratic bubbles unsynchronized with the bubbles observed in lithium markets.

Rethinking Asset Pricing with Quantile Factor Models (with Xenxo Vidal and Montserrat Guillén) IREA-University of Barcelona, 2021

Comments are welcome!

Traditional empirical asset pricing focuses on the average cases. We propose a new approach to analyze the cross-section of the returns. We test the predictive power of market-beta, size, book-to-market ratio, profitability, investment, momentum, and liquidity, across the whole conditional distribution of market returns.  We show that the practice of adding characteristics to our pricing equation should be clearly informed by our particular interests regarding the cross-sectional distribution of the returns, that is, whether we are more interested in a certain fragment of the distribution than in other parts. Our results emphasize the need to consider carefully what factors to include in the pricing equation, which depends on the dynamics that one wants to understand and even on one attitude towards risk. In short, not all factors serve all purposes.

Interdependent Capital Structure Choices and the Macroeconomy(with Jose E. Gómez and Jorge Hirs). IREA-University of Barcelona, 07-2021, Colombian Economists’ Network. 2021


This study shows that capital structure choices of US corporations are interdependent across time. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions.