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Essays on Asset Pricing.

Chen, Zhuo.

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Essays on Asset Pricing.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Essays on Asset Pricing./
Author:	Chen, Zhuo.
Description:	274 p.
Notes:	Source: Dissertation Abstracts International, Volume: 75-10(E), Section: A.
Contained By:	Dissertation Abstracts International75-10A(E).
Subject:	Economics, Finance. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3626493
ISBN:	9781321014631

Essays on Asset Pricing.
Chen, Zhuo.

Essays on Asset Pricing. - 274 p.

Source: Dissertation Abstracts International, Volume: 75-10(E), Section: A.

Thesis (Ph.D.)--Northwestern University, 2014.

This item must not be sold to any third party vendors.

Chapter 1 surveys the theoretical and empirical literature on funding liquidity. Funding liquidity measures the ease with which investors raise external capital to finance their portfolio positions. Literature in this area investigates how shocks to investors' funding constraints affect asset prices and liquidity provision. Researchers have shown that funding liquidity restricts arbitrageurs' ability to correct mispricing and provide market liquidity. Current research emphasizes the role of financial intermediaries on risk premia and macroeconomic fluctuations. I begin my survey on the theoretical development and empirical findings regarding funding liquidity. I next discuss the relationship between funding liquidity and market liquidity, including liquidity spiral, liquidity comovement, and liquidity mismatch. I finally survey implications on macroeconomics, corporate finance, and other market frictions.

ISBN: 9781321014631Subjects--Topical Terms:

626650
Economics, Finance.

Essays on Asset Pricing.
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100 1 $a Chen, Zhuo. $3 1681217
245 1 0 $a Essays on Asset Pricing.
300 $a 274 p.
500 $a Source: Dissertation Abstracts International, Volume: 75-10(E), Section: A.
500 $a Advisers: Ravi Jagannathan; Arvind Krishnamurthy.
502 $a Thesis (Ph.D.)--Northwestern University, 2014.
506 $a This item must not be sold to any third party vendors.
520 $a Chapter 1 surveys the theoretical and empirical literature on funding liquidity. Funding liquidity measures the ease with which investors raise external capital to finance their portfolio positions. Literature in this area investigates how shocks to investors' funding constraints affect asset prices and liquidity provision. Researchers have shown that funding liquidity restricts arbitrageurs' ability to correct mispricing and provide market liquidity. Current research emphasizes the role of financial intermediaries on risk premia and macroeconomic fluctuations. I begin my survey on the theoretical development and empirical findings regarding funding liquidity. I next discuss the relationship between funding liquidity and market liquidity, including liquidity spiral, liquidity comovement, and liquidity mismatch. I finally survey implications on macroeconomics, corporate finance, and other market frictions.
520 $a Chapter 2, jointly with Andrea Lu, constructs a tradable funding liquidity factor that exploits information in both the time series and cross-section of stock returns. We show that in an economy where investors face asset-specific funding constraints (margins), the risk premium of a market-neutral portfolio that longs leveraged low-beta stocks and shorts de-leveraged high-beta stocks, as in Frazzini and Pedersen (2013), depends on both the market-wide funding conditions and stocks' margin requirements. We isolate funding liquidity shocks as the return difference between two zero-beta portfolios constructed using stocks with high and low margins. Our market-based funding liquidity measure is highly correlated with other proxies proposed in the literature, and cannot be explained by existing pricing factors, such as the Fama-French three factors. Moreover, our measure helps explain the cross-section of hedge fund returns: hedge funds with the lowest funding liquidity sensitivities earn 10.7% per year higher returns than their peers whose returns strongly comove with funding liquidity shocks. We provide a possible explanation for this finding: some funds have the ability to manage the funding liquidity risk and thus can earn higher returns.
520 $a Chapter 3, jointly with Andrea Lu, investigates the source of price momentum in the equity market using information from options markets. Consistent with Hong and Stein's (1999) gradual information diffusion model, we show that a successful identification of stocks' information diffusion stage helps explain momentum profits. We construct a momentum portfolio by selecting winner (loser) stocks with large growth (decline) in call options implied volatility. Our portfolio generates a risk-adjusted alpha of 1.8% per month over the 1996--2011 period, during which a simple momentum strategy performs poorly. The results are stronger if we use call options, compared with put options, and robust to a battery of alternatives.
520 $a Chapter 4, jointly with Andrea Lu, develops a consumption-based asset pricing model (CCAPM) with adjustable durable goods consumption and studies the asset pricing implications. In contrast to past studies that assume service flow to be a constant fraction of the stock, we model the utilization of the stock of durable goods to be time-varying. We propose an innovative measure of the unobserved usage of durable goods from carbon dioxide emissions. Emissions provide a convenient aggregation of energy consumption that has become an important complementary input for durable goods in recent decades. We find that the time-varying utilization of durable goods is a valid asset pricing factor. Our model exhibits a stronger cross-sectional pricing power than the CAPM and several consumption-based capital asset pricing models (CCAPMs), including Yogo's (2006) durable good model. Finally, our model mitigates the joint risk premium and implied risk-free rate puzzle.
520 $a Chapter 5, jointly with Andrea Lu and Zhuqing Yang, examines whether international political instability is a pricing factor for cross-country return variations. We exploit a unique dataset of country-specific military expenditures and construct a proxy for the international instability, measured as the growth rate of the global military expenditure to GDP ratio, to capture political tensions and international conflicts. Using the market indices of 49 countries, we find that the international political instability is a valid pricing factor for international stock markets. Our factor helps explain the cross-country return differences, complementary to existing global asset pricing models. In addition, emerging countries have higher exposures to the international political instability risk than developed countries. Such higher exposures contribute to the higher returns observed in emerging countries.
590 $a School code: 0163.
650 4 $a Economics, Finance. $3 626650
650 4 $a Economics, Theory. $3 1017575
690 $a 0508
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710 2 $a Northwestern University. $b Finance. $3 1035385
773 0 $t Dissertation Abstracts International $g 75-10A(E).
790 $a 0163
791 $a Ph.D.
792 $a 2014
793 $a English
856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3626493