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Causal Inference for Asset Pricing
(with Valentin Haddad, Zhiguo He, Paul Huebner, and Peter Kondor)

First version: Fall 2024
This version:  Summer 2026


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Abstract:

Portfolio choice involves substituting across many assets at once, 
complicating inference about asset demand. An elementary condition 
often captures this behavior in theory and practice: homogeneous 
substitution conditional on observables (e.g., factor loadings, 
maturity, credit ratings). We characterize natural experiments identifying 
demand elasticity and price impact under this condition. Cross-sectional 
IV and difference-in-differences identify relative elasticity, 
own- minus cross-price elasticity for assets sharing observables.
But a missing-coefficient problem leaves substitution unidentified: 
the coefficients on observables mechanically absorb it. Identifying 
substitution requires time-series regressions on portfolios sorted 
on observables. We apply the framework to corporate bonds, comparing 
alternative Fed asset-purchase programs.


Outstanding Paper Award from the Swiss Finance Institute (2025)



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