Demand-based Asset Pricing: Theory, Estimation and Applications

This thesis investigates the relationship between investors' demand shocks and asset prices through the use of data on portfolio holdings. In three chapters, I study the theory, estimation, and application of demand-based asset pricing models, which incorporate data on investors' portfolio holdings and equilibrium asset prices. I first present a generalized framework and propose a new estimator of investor-specific demand curves that is based on time-series changes in investors' portfolios. I then use and extend the proposed estimator to quantify the equilibrium price impact of the growing institutional demand for sustainable investments. I show that the returns from sustainable investing are strongly driven by price pressure from flows towards sustainable funds, causing high realized returns that do not reflect high expected returns. The last chapter quantifies the price impact of the retail investment boom during the Covid-19 pandemic via a structural model that uses data on portfolio holdings of US households.