Karl Schmedders

Professor of Finance

Karl Schmedders is Professor of Finance. His research and teaching focuses on sustainability and the economics of climate change. He is therefore able to provide key insights on the transition risk arising from the shift to a greener economy and help companies face up to the challenges of potential asset degradation and increasing carbon prices.

He says finance and economics offer many tools to combat climate change, and that the power of incentives and markets can be employed to make progress. In addition, businesses and consumers need to take a leading role in the search for solutions to the climate crisis and not just wait for governments and policymakers to introduce climate change mitigation and adaptation measures.

Global warming is the defining problem of our times, which deserves the attention of business leaders. It is not just short-term hype.

Schmedders is passionate about the importance of a “just transition” in which no one loses out as a result of action to tackle climate change. He believes that more attention needs to be paid to the S and G elements of the ESG (environmental, social and governance) equation to ensure that action on the environmental component does not adversely affect people with low incomes and those living in developing countries. In his view, humanity will fail in its fight against climate change and global warming if it does not also address inequality and ensure a just transition.

His expertise in computational methods in finance means that he is able to apply numerical solution techniques to complex economic and financial models and shed light on a range of topical market issues and industry problems for organizations. He was Director of IMD’s custom program for Malaysian bank Maybank and has worked with a range of clients such as ABB, Airbus, Eneva, Evonik, Orkla, and Julius BĂ€r.

Schmedders is also Director of IMD’s new online certification course for structured investment products in partnership with Swiss company Leonteq, teaches in the Advanced Management Concepts (AMC) and Executive MBA programs, and is an advisor on International Consulting Projects in the MBA program.

He has published numerous research articles in international academic journals such as Econometrica, Review of Economic Studies, the Journal of Financial Economics, the Journal of Finance, Review of Financial Studies, Management Science, and Operations Research.

Before joining IMD in 2019, Schmedders was Professor of Quantitative Business Administration at the University in Zurich and Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management at Northwestern University in Evanston, Illinois. He received his PhD from Stanford University and received several teaching awards from both Stanford and Kellogg.

He remains a visiting professor of Executive MBA Education at Kellogg School of Management and is a board member of Swiss firms LPX Group and SYLVA AG. He is also a fellow of the Game Theory Society.

Selected publications
Article
A large-scale optimization model for replicating portfolios in the life insurance industry
Replicating portfolios have emerged as an important tool in the life insurance industry, used for the valuation of companies’ liabilities. This paper describes the replicating portfolio (RP) model ...
Published 1 July 2021
Article
Asset pricing with heterogeneous agents and long-run risk
This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption an...
Published 1 June 2021
Article
What managers need to know about data exchanges: The era of big-data silos is fading. Shared data is the future.
The idea that many businesses rely heavily on data to produce or market goods and services is not new. However, data differs greatly from traditional factors of production, such as capital and labo...
Published 9 June 2020
Article
Higher order effects in asset pricing models with long-run risk
This paper shows that the latest generation of asset pricing models with long‐run risk exhibit economically significant nonlinearities, and thus the ubiquitous Campbell‐Shiller log-linearization ca...
Published 2 February 2018
Article
Optimal and naive diversification in currency markets
DeMiguel, Garlappi, and Uppal (Review of Financial Studies, 22 (2009), 1915–1953) showed that in the stock market, it is difficult for an optimized portfolio constructed using mean-variance analysi...
Published 15 August 2016
Article
A polynomial optimization approach to principal-agent problems
This paper presents a new method for the analysis of moral hazard principal–agent problems. The new approach avoids the stringent assumptions on the distribution of outcomes made by the classical f...
Published 3 April 2015
Academic publications
Article
Multi-party certification on blockchain and its impact in the market for lemons
Markets in which similar goods of different qualities are sold suffer from information asymmetries and their negative consequences. Dealers have established themselves, and mediate these markets th...
Published 3 April 2022
Article
Re-use of collateral: Leverage, volatility, and welfare
We assess the implications of collateral re-use on leverage, volatility, and welfare within a calibrated infinite-horizon asset-pricing model with heterogeneous agents and disaster shocks. In our m...
Published 2 January 2023
Article
Asset pricing with heterogeneous agents and long-run risk
This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption an...
Published 1 June 2021
Article
A large-scale optimization model for replicating portfolios in the life insurance industry
Replicating portfolios have emerged as an important tool in the life insurance industry, used for the valuation of companies’ liabilities. This paper describes the replicating portfolio (RP) model ...
Published 1 July 2021
Article
Discrete‐time dynamic principal–agent models: Contraction mapping theorem and computational treatment
We consider discrete‐time dynamic principal–agent problems with continuous choice sets and potentially multiple agents. We prove the existence of a unique solution for the principal's value functio...
Published 20 November 2020
Article
Computing economic equilibria using projection methods
The analysis of dynamic economic models routinely leads to the mathematical problem of determining an unknown function for which no closed-form solution exists. Economists must then resort to metho...
Published 2 August 2020
Article
Financial innovation and asset price volatility
We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the econo...
Published 1 May 2012
Article
Optimal and naive diversification in currency markets
DeMiguel, Garlappi, and Uppal (Review of Financial Studies, 22 (2009), 1915–1953) showed that in the stock market, it is difficult for an optimized portfolio constructed using mean-variance analysi...
Published 15 August 2016
Article
Asset prices with temporary shocks to consumption
Most standard asset-pricing models assume that all shocks to consumption are permanent. We relax this assumption and allow also for temporary shocks. The implications of our model are dramatically ...
Published 25 May 2016
Article
Collateral requirements and asset prices
Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this article, we investigate this collateral premium and its impact on asset re...
Published 23 January 2015
Article
Finding all pure‐strategy equilibria in games with continuous strategies
Static and dynamic games are important tools for the analysis of strategic interactions among economic agents and have found many applications in economics. In many games, equilibria can be describ...
Published 25 July 2012
Article
A polynomial optimization approach to principal-agent problems
This paper presents a new method for the analysis of moral hazard principal–agent problems. The new approach avoids the stringent assumptions on the distribution of outcomes made by the classical f...
Published 3 April 2015
Article
Higher order effects in asset pricing models with long-run risk
This paper shows that the latest generation of asset pricing models with long‐run risk exhibit economically significant nonlinearities, and thus the ubiquitous Campbell‐Shiller log-linearization ca...
Published 2 February 2018
Article
The economic and public health impact of influenza vaccinations: Contributions of Swiss pharmacies in the 2016/17 and 2017/18 influenza seasons and implications for vaccination policy
Healthy adults have had the option to receive prescriptionless vaccination against influenza in pharmacies of several Swiss cantons since the 2015/16 influenza season. We aimed to assess in a cost-...
Published 17 December 2019
Article
Statistical approximation of high-dimensional climate models
We propose a general emulation method for constructing low-dimensional approximations of complex dynamic climate models. Our method uses artificially designed uncorrelated CO2 emissions scenarios, ...
Published 1 January 2020
Article
Margin regulation and volatility
An infinite-horizon asset-pricing model with heterogeneous agents and collateral constraints can explain why adjustments in stock market margins under US Regulation T had an economically insignific...
Published 1 October 2015
Article
Optimal rules for patent races
There are two important rules to patent races: minimal accomplishment necessary to receive the patent and the allocation of the innovation benefits. We study the optimal combination of these rules....
Published 22 February 2012
Insight for Executives
Fighting climate change may be right, but it also needs to be fair 
Article
Fighting climate change may be right, but it also needs to be fair 
Measures to safeguard the planet are expensive and tend to hit those on the lowest incomes hardest. So, when it comes to ESG, it is vital to take social factors into account as well as the environm...
Published 25 October 2022
Article
FĂŒr einen "gerechten Übergang"
Finance and business have many tools at their disposal to combat climate change. The power of markets can be harnessed to make progress. But businesses and consumers also need to take a leading rol...
Published 12 October 2022
Books to inspire, inform and entertain 
Article
Books to inspire, inform and entertain 
From dealing with burnout and bullsh*t to the joys of friendship and climbing mountains, IMD professors offer a varied choice of summer reading material.
Published 16 June 2022
Carbon taxes need to explode to deal with the “mother of all externalities”
Article
Carbon taxes need to explode to deal with the “mother of all externalities”
Increasing the scope and price of carbon taxes is the most effective tool to reduce greenhouse gas emissions, says Professor Karl Schmedders.
Published 28 March 2022
Article
Spring statement 2022: Quick analysis about standard of living, energy crisis and more – from experts
These are difficult times for European governments of all political colours. COVID forced them to open their coffers to support their economies, which resulted in strong increases in debt-to-GDP ra...
Published 24 March 2022
Higher borrowing costs call for financial prudence
Article
Higher borrowing costs call for financial prudence
As the era of ultra-loose monetary policy ends imminently, corporates will need to act wisely and carefully to navigate a treacherous landscape. With inflation raging at near or above multi-year pe...
Published 23 February 2022
Article
Why the NFT market will collapse
Prices of non-fungible tokens remain high for now and may continue to increase for some time, but a crash will come. With central banks set to tighten monetary policy in an effort to rein in inflat...
Published 28 January 2022
Without a just transition, we are heading for disaster
Article
Without a just transition, we are heading for disaster
The world is more focused than ever on the measures needed to limit climate change and deal with its consequences, but the social impact of these measures — on people’s jobs, livelihoods and commun...
Published 26 November 2021
Have you considered the actual relationship between E, S and G?
Article
Have you considered the actual relationship between E, S and G?
On the heels of the COP 26 UN Climate Change Conference there is global buzz about ESG goals, but many gaps remain between companies’ talk and their actions.
Published 15 November 2021
Article
Autumn budget 2021: Experts react
UK chancellor Rishi Sunak has unveiled his autumn budget as the nation wrestles with recovery at the tail end of the COVID pandemic, supply shortages and a mounting crisis in the cost of living. Ou...
Published 27 October 2021
Article
Stock market: Many companies are choosing not to be listed – here’s why
Stock markets reached all-time highs in 2021, bringing huge value to the companies riding the wave, even when you allow for the dip in recent weeks. We are also in the midst of a boom year for flot...
Published 7 October 2021
Why German business shouldn’t fear a greener government
Article
Why German business shouldn’t fear a greener government
Should Germany’s Green party score a big enough share of the vote in a federal election on 26 September to enter the next coalition government, business should embrace the opportunity to accelerate...
Published 21 September 2021
Article
Warum wir richtig rechnenden Kapitalismus brauchen
Anyone who demands that environmental damage should be priced into services and goods today is far from being a socialist. They are just canny, calculating capitalists.
Published 18 September 2021
The reality of climate financial risk
Article
The reality of climate financial risk
Those who argue that climate change has little to do with macroprudential risk management are offering a counsel of despair. If the 2008 global financial crisis revealed anything, it is that regula...
Published 14 September 2021
Article
The reality of climate financial risk
Those who argue that climate change has little to do with macroprudential risk management are offering a counsel of despair. If the 2008 global financial crisis revealed anything, it is that regula...
Published 13 September 2021
ESG – Making sense of the madness
Video
ESG – Making sense of the madness
‘The E and the S are competing for attention, and the greener we go, the more social harm we need to account for,’ says IMD Professor of Finance Karl Schmedders.
Published 9 July 2021
ESG – Making sense of the madness
Article
ESG – Making sense of the madness
‘The E and the S are competing for attention, and the greener we go, the more social harm we need to account for,’ says IMD Professor of Finance Karl Schmedders.
Published 9 July 2021
Article
Concern is mounting about zombie companies: Why that matters for the economic recovery
With interest rates at record lows, many companies have been able to borrow money at very little cost. This cheap cash, which was flooding financial markets before the pandemic began, led some comp...
Published 9 April 2021
Article
The zombie company problem and what it means for our economies
With interest rates at record lows, many companies have been able to borrow money at very little cost. This cheap cash, which was flooding financial markets before the pandemic began, led some comp...
Published 8 April 2021
Archegos, the Wall Street fire sale, and the need for reporting requirements
Article
Archegos, the Wall Street fire sale, and the need for reporting requirements
Archegos had secured billions of dollars in credit from several investment banks using opaque financial derivatives that enabled it to amass massive stakes in companies under the radar. When its hi...
Published 1 April 2021
The lost generation?
Article
The lost generation?
Family businesses traditionally pull together to survive a crisis, but the dramatic impact of the pandemic has brought even the strongest to their knees. They will have to develop new skills to ada...
Published 10 March 2021
Article
Budget 2021: Experts react
Rishi Sunak has unveiled his second budget as UK chancellor a year into the coronavirus pandemic and during the worst economic collapse in centuries. Our panel of experts offer their views on what ...
Published 3 March 2021
Article
Takeovers: A tidal wave of buyouts is coming in 2021 – here’s what it means
Luxury goods giant LVMH has completed its US$15.8 billion (ÂŁ11.6 billion) mega-deal to buy famous American jeweller Tiffany & Co. LVMH, which owns Louis Vuitton, originally agreed to pay US$16.2 bi...
Published 8 January 2021
Article
The real view from Europe on coronavirus relief in America
Congress is in negotiations for the next round of coronavirus relief. The Republican proposal attempts to fix mistakes made in the Cares Act and extend some of its features to deal with the ongoing...
Published 31 July 2020
“Hordes of zombies and fallen angels point to horror recovery”
Article
“Hordes of zombies and fallen angels point to horror recovery”
Professor of Finance says record corporate debt meant cash-strapped companies were dangerously exposed even before the pandemic, but strong companies could yet profit.
Published 16 July 2020
Article
What managers need to know about data exchanges: The era of big-data silos is fading. Shared data is the future.
The idea that many businesses rely heavily on data to produce or market goods and services is not new. However, data differs greatly from traditional factors of production, such as capital and labo...
Published 9 June 2020
Article
Attack of zombie companies: don’t let them eat bailouts that are vital to restore the economy
Governments are all deciding which struggling companies to help out in the COVID-19 pandemic. Among the many looking for help, some have a strange deathly pallor. There are many of these zombies in...
Published 2 June 2020
Coronavirus: Digital contact tracing doesn’t have to sacrifice privacy
Article
Coronavirus: Digital contact tracing doesn’t have to sacrifice privacy
We can develop a data consciousness, becoming aware of the power of our data, taking control over it, and reshaping the way it is handled.
Published 29 April 2020
Article
Coronavirus: Digital contact tracing doesn’t have to sacrifice privacy
Pressure is building on governments around the world to reduce the lockdown measures used to stop the spread of COVID-19, and to prevent the disease re-emerging once it is under control. As a resul...
Published 29 April 2020
Article
Why the U.S. government needs a new corporate bailout structure—one that doesn’t rely on loans
Under the Coronavirus Aid, Relief and Economic Security (Cares) Act in response to the Covid-19 crisis, businesses large and small across the U.S. economy will receive massive financial support fro...
Published 17 April 2020
Leading in turbulent times webinar series: Surviving the shockwaves
Video
Leading in turbulent times webinar series: Surviving the shockwaves
Financial markets and the COVID-19 crisis
Published 10 April 2020
Article
Coronavirus: The economic recovery won’t only be U-shaped – it’ll look like a wheelbarrow
The economic effects of the coronavirus crisis will be severe but short-lived, according to much of the recent commentary. The cautious revival in stock markets points in the same direction, while ...
Published 8 April 2020
Article
UK budget 2020: Experts react
Rishi Sunak has delivered his first budget as UK chancellor and the Conservative Party’s first budget since winning the 2019 general election. Here our panellists give their take on his announcemen...
Published 11 March 2020
Article
Review of outcomes from a change in faculty clinic management in a U.S. dental school
Dental schools use a variety of clinic management models with the goals of promoting patient care, student education, and fiscal responsibility. In 2004, the University of the Pacific Arthur A. Dug...
Published 1 September 2010