Holger Kraft

Goethe University
Theodor-W.-Adorno-Platz 3
60323 Frankfurt am Main

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Institutional Affiliation: Goethe University

NBER Working Papers and Publications

May 2018The Carbon Abatement Game
with Christoph Hambel, Eduardo S. Schwartz: w24604
Climate change is one of the major global challenges. Mitigating its impact is however bedeviled by free-rider problems and external effects. We thus study the problem of optimal carbon abatement in a dynamic non-cooperative game-theoretical setting involving multiple countries that are open economies. Our framework involves stochastic dynamics for CO2 emissions and economic output of the countries. Each country is represented by a recursive-preference functional. Despite its complexity, the model is analytically tractable. We can explicitly quantify each country's decision on consumption, investment, and abatement expenditures. We also derive closed-form solutions for the country-specific and global social cost of carbon (SCC). One key finding is that both versions of the SCC are increasi...
March 2015Optimal Carbon Abatement in a Stochastic Equilibrium Model with Climate Change
with Christoph Hambel, Eduardo Schwartz: w21044
This paper studies a dynamic stochastic general equilibrium model involving climate change. Our frame- work allows for feedback effects on the temperature dynamics. We are able to match estimates of future temperature distributions provided in the fifth assessment report of the IPCC (2014). We compare two approaches to capture damaging effects of temperature on output (level vs. growth rate impact) and combine them with two degrees of severity of this damage (Nordhaus vs. Weitzman calibration). It turns out that the choice of the damage function is crucial to answer the question of how much the distinction between level and growth rate impact matters. The social cost of carbon is similar for frameworks with level or growth rate impact if the potential damages of global warming are moderate...
February 2013Growth Options and Firm Valuation
with Eduardo S. Schwartz, Farina Weiss: w18836
This paper studies the relation between firm value and a firm's growth options. We find strong empirical evidence that (average) Tobin's Q increases with firm-level volatility. The significance mainly comes from R&D firms, which have more growth options than non-R&D firms. By decomposing firm-level volatility into its systematic and unsystematic part, we document that only idiosyncratic volatility has a significant effect on valuation. Second, we analyze the relation of stock returns to realized contemporaneous idiosyncratic volatility and R&D expenses. Single sorting on idiosyncratic volatility yields a significant negative relation between portfolio alphas and contemporaneous idiosyncratic volatility for non-R&D portfolios, whereas in a four-factor model the portfolio alphas of R&D portf...

Published: Holger Kraft & Eduardo Schwartz & Farina Weiss, 2018. "Growth options and firm valuation," European Financial Management, vol 24(2), pages 209-238.

March 2010Cash Flow Multipliers and Optimal Investment Decisions
with Eduardo S. Schwartz: w15807
By postulating a simple stochastic process for the firm's cash flows in which the drift and the variance of the process depend on the investment policy of the firm, we develop a theoretical model, determine the optimal investment policy and, given this policy, calculate the ratio of the current value of the firm and the current cash flow which we call the "cash flow multiplier''. The main contribution of the paper, however, is empirical. Using a very extensive data set comprised of more than 13,000 fims over 44 years we examine the determinants of the cash flow multiplier using as explanatory variables macro and firm specific variables suggested by the theoretical model. We find strong support for the variables suggested by the model. Perhaps the most interesting aspect of the paper is th...

Published: Holger Kraft & Eduardo Schwartz, 2015. "Cash Flow Multipliers and Optimal Investment Decisions," European Financial Management, vol 21(3), pages 399-429.

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