Essays On Production Based Asset Pricing

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Essays On Production Based Asset Pricing

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Author : Yifan Zhu
language : en
Publisher:
Release Date : 2022

Essays On Production Based Asset Pricing written by Yifan Zhu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with Operating leverage categories.

This dissertation consists of two essays on production-based asset pricing. The first essay studies the asset pricing implications of investment and disinvestment op- tions with a production-based model featuring costly reversibility. Investment options are contingent claims on assets in place so that they are riskier and earn higher expected re- turns. Disinvestment options with costly reversibility reduce exposure to aggregate risks amid deteriorating business conditions and lower expected returns on a firm. The inextri- cable link between investment options and disinvestment options explains the coexistence of the profitability premium and the value premium while retains a positive relation between profitability and market valuation ratios. My model also generates a procyclical profitability premium and a countercyclical value premium. In the second essay, my co-authors and I investigate the joint asset pricing effects of variable costs and fixed costs in a firm’s production process. While the latter such as SG&A expenses create an operating leverage effect, the variable costs allow firms to hedge against aggregate profitability shocks. Taking into account both types of production costs explains the empir- ical patterns in the cross-section asset returns in portfolios sorted by the gross profitability and operating leverage. Our model reconciles the seemingly contradictory phenomena that higher productivity firms earn lower returns ( ̇Imrohoro ̆glu and T ̈uzel (2014)), whereas more profitable, often more productive, firms earn higher returns (Novy-Marx (2013)). It also of- fers a novel explanation for the negative idiosyncratic volatility premium (Ang et al. (2006)) based on production costs.

Two Essays In Production Based Asset Pricing

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Author : Robert B. Porter
language : en
Publisher:
Release Date : 1999

Two Essays In Production Based Asset Pricing written by Robert B. Porter and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Assets (Accounting) categories.

Essays On Asset Pricing In Production Economies

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Author : Andrew Yeh-Chi Chen
language : en
Publisher:
Release Date : 2014

Essays On Asset Pricing In Production Economies written by Andrew Yeh-Chi Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

Chapter 3 examines general restrictions on production technologies implied by asset prices. It shows that representative firm models which are consistent with asset price data require either large capital adjustment costs, or volatile investment-specific technology shocks. These restrictions hold regardless of preferences, beliefs, operating leverage, or the completeness of asset markets. The restrictions summarize the sense in which asset prices are anomalous with respect to the theory of optimal investment.

Essays On Asset Pricing

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Author : Gabriel Ignacio Cuevas Rodriguez
language : en
Publisher:
Release Date : 2023

Essays On Asset Pricing written by Gabriel Ignacio Cuevas Rodriguez and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.

In Chapter 1, I analyze firms' misallocation through the output distortions channel, using a production-based asset pricing model as a framework. In the model, alpha measures the firm's ability to choose technologies to adapt to exogenous shocks. I find in the cross-section of the test portfolios the estimated curvature parameter alpha is more than two times the original value obtained in Belo (2010). This implies misallocations reduce the firm's ability to respond to the different states of nature. I calibrate and solve the model in the special case of a single representative firm. I find that the impact of misallocation on firm value, production, capital, investment, and investment return is larger when firms' ability to adapt to exogenous shocks is reduced. This indicates that firms may be less agile to adapt across states of nature and provides more evidence of the detrimental effect of misallocations. In Chapter 2 (with Denis Mokanov and Danyu Zhang), we document several facts about equity analysts' earnings expectations: (1) consensus earnings expectations underreact to news unconditionally, (2) the degree of underreaction declines during high-volatility periods, and (3) the degree of underreaction declines over our sample. To account for these findings, we develop a simple model featuring time-varying inattention. We show that our model is able to account for the unconditional profitability of momentum, momentum crashes, and the diminishing profitability of momentum over our sample. We propose a trading strategy that mixes short-run and long-run momentum signals and show that the mixed momentum strategy outperforms the conventional momentum strategies. Finally, we use a machine learning algorithm to estimate the predictable component of earnings surprises and construct a portfolio that is long (short) on stocks with excessively pessimistic (optimistic) earnings expectations. The resultant trading strategy generates an annualized Sharpe ratio of about 1.16 and its returns are not explained by popular factor models.

Essays In Consumption Based Asset Pricing Models

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Author : Hugo Alejandro Garduño Arredondo
language : en
Publisher:
Release Date : 2008

Essays In Consumption Based Asset Pricing Models written by Hugo Alejandro Garduño Arredondo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Investments categories.

Essays In Information Based Asset Pricing

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Author : Michael Hasler
language : en
Publisher:
Release Date : 2013

Essays In Information Based Asset Pricing written by Michael Hasler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

Essays On Empirical Asset Pricing

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Author : Xiang Zhang
language : en
Publisher:
Release Date : 2013

Essays On Empirical Asset Pricing written by Xiang Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

This thesis consists of three essays on empirical asset pricing around three themes: evaluating linear factor asset pricing models by comparing their misspecified measures, understanding the long-run risk on consumption-leisure to investigate their pricing performances on cross-sectional returns, and evaluating conditional asset pricing models by using the methodology of dynamic cross-sectional regressions. The first chapter is ̀̀Comparing Asset Pricing Models: What does the Hansen-Jagannathan Distance Tell Us?''. It compares the relative performance of some important linear asset pricing models based on the Hansen-Jagannathan (HJ) distance using data over a long sample period from 1952-2011 based on U.S. market. The main results are as follows: first, among return-based linear models, the Fama-French (1993) five-factor model performs best in terms of the normalized pricing errors, compared with the other candidates. On the other hand, the macro-factor model of Chen, Roll, and Ross (1986) five-factor is not able to explain industry portfolios: its performance is even worse than that of the classical CAPM. Second, the Yogo (2006) non-durable and durable consumption model is the least misspecified, among consumption-based asset pricing models, in capturing the spread in industry and size portfolios. Third, the Lettau and Ludvigson (2002) scaled consumption-based CAPM (C-CAPM) model obtains the smallest normalized pricing errors pricing gross and excess returns on size portfolios, respectively, while Santos and Veronesi (2006) scaled C-CAPM model does better in explain the return spread on portfolios of U.S. government bonds. The second chapter (̀̀Leisure, Consumption and Long Run Risk: An Empirical Evaluation'') uses a long-run risk model with non-separable leisure and consumption, and studies its ability to price equity returns on a variety of portfolios of U.S. stocks using data from 1948-2011. It builds on early work by Eichenbaum et al. (1988) that explores the empirical properties of intertemporal asset pricing models where the representative agent has utility over consumption and leisure. Here we use the framework in Uhlig (2007) that allows for a stochastic discount factor with news about long-run growth in consumption and leisure. To evaluate our long-run model, we assess its performance relative to standard asset pricing models in explaining the cross-section of returns across size, industry and value-growth portfolios. We find that the long-run consumption-leisure model cannot be rejected by the J-statistic and it does better than the standard C-CAPM, the Yogo durable consumption and Fama-French three-factor models. We also rank the normalized pricing errors using the HJ distance: our model has a smaller HJ distance than other candidate models. Our paper is the first, as far as we are aware, to use leisure data with adjusted working hours as a measure of leisure i.e., defined as the difference between a fixed time endowment and the observable hours spent on working, home production, schooling, communication, and personal care (Yang (2010)). The third essay: ̀̀Empirical Evaluation of Conditional Asset Pricing Models: An Economic Perspective'' uses dynamic Fama-MacBeth cross-sectional regressions and tests the performance of several important conditional asset pricing models when allowing for time-varying price of risk. It compares the performance of conditional asset pricing models, in terms of their ability to explain the cross-section of returns across momentum, industry, value-growth and government bond portfolios. We use the new methodology introduced by Adrian et al. (2012). Our main results are as follows: first we find that the Lettau and Ludvigson (2001) conditional model does better than other models in explaining the cross-section of momentum and value-growth portfolios. Second we find that the Piazessi et al. (2007) consumption model does better than others in pricing the cross-section of industry portfolios. Finally, we find that in the case of the cross-section of risk premia on U.S. government bond portfolios the conditional model in Santos and Veronesi (2006) outperforms other candidate models. Overall, however, the Lettau and Ludvigson (2001) model does better than other candidate models. Our main contributions here is using a recently developed method of dynamic Fama-MacBeth regressions to evaluate the performance of leading conditional CAPM (C-CAPM) models in a common set of test assets over the time period from 1951-2012.

Essays In Empirical Asset Pricing

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Author : Ali Sharifkhani
language : en
Publisher:
Release Date : 2019

Essays In Empirical Asset Pricing written by Ali Sharifkhani and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

In my dissertation, I study different channels through which shocks in the real economy can affect financial asset returns. The first chapter studies immigration policy shocks as a source of risk in the financial markets. Using a comprehensive set of data on H-1B visa petitions, I construct an occupation-level measure for labor market competition between skilled immigrant and local workers. I find that stocks of firms with a high share of labor for which skilled immigrants are close substitutes outperform their peers with a low share. I show that this premium is explained by firms' differential exposures to priced immigration policy shocks that shift the supply of skilled immigrant labor. These shocks differentially impact wages across occupations, leading to an asymmetric effect on firms' cash flows through labor expenditure. In the second chapter, based on a joint work with Esther Eiling and Raymond Kan, we investigate the asset pricing implications of sectoral labor reallocation shocks that change the optimal allocation of workers across industries. We find that a proxy for this type of labor market shocks has very strong predictive power for future stock market returns. We propose a production-based asset pricing model that links the return predictability to time-varying labor adjustment costs. When human capital is tied to the industry, hiring workers from other industries involves more search and training costs. Hence, sectoral reallocation shocks lead to lower returns to hiring and therefore lower future stock returns. In the third chapter, we identify inter-sectoral trade networks as important conduits of industry shocks and provide the first explanation for an empirical regularity in the term structure of industry returns. Specifically, my co-author Mikhail Simutin and I show that industry shocks propagating along this network can feed back to the originating industry, causing an "echo'' - intermediate-term autocorrelation in returns. Adopting techniques from graph theory, we find that the strength of the trade network feedback is a crucial determinant of the echo effect in industry returns. Consistent with limited-information models, the relation between feedback strength and echo profits is strongest in industries with information diffusion frictions along the feedback loop.

Essays In Computation Based Asset Pricing

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Author : Michal Pakoš
language : en
Publisher:
Release Date : 2005

Essays In Computation Based Asset Pricing written by Michal Pakoš and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Assets (Accounting) categories.

Essays On Productivity Risks In Asset Pricing

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Author : Nam Gang Lee
language : en
Publisher:
Release Date : 2018

Essays On Productivity Risks In Asset Pricing written by Nam Gang Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with Business cycles categories.

This dissertation analyzes the effect of productivity risk on economic fluctuations and asset prices in a production economy. My analysis is based on the direct estimation of various specifications regarding productivity, a key driver of fluctuations in macro quantities and asset prices, and seeks to avoid being the error of reverse-engineering the exogenous productivity process to match asset-pricing data.