This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related…
Finance and Financial Services
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Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market β, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the…
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This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the…
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Gross spreads received by underwriters on initial public offerings (IPOs) in the United States are much higher than in other countries. Furthermore, in recent years more than 90 percent of deals raising $20-80 million have spreads of exactly seven…
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Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns. Hendricks, Patel and Zeckhauser's (1993)…
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The article presents information on the capital structure of the firms and how they choose the debt, equity or hybrid securities issued by them. The author contrasts two ways to think about capital structure. The first views it as a static tradeoff…
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IN ITS ROLE as the final arbiter for the allocation of our scarce capital resources, the American securities market has been the object of continuing close scrutiny by both the scholarly community and the architects of public policy. The pre-…
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Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as…
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We model a market populated by two groups of boundedly rational agents: "newswatchers" and "momentum traders." Each newswatcher observes some private information, but fails to extract other newswatchers' information from prices. If information…
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This paper solves explicitly a simple equilibrium model with liquidity risk. In our liquidity-adjusted capital asset pricing model, a security's required return depends on its expected liquidity as well as on the covariances of its own return and…
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We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. A…
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Corporate managers are the agents of shareholders, a relationship fraught with conflicting interests. Agency theory, the analysis of such conflicts, is now a major part of the economics literature. The payout of cash to shareholders creates major…
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It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital…
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Many corporate assets, particularly growth opportunities, can be viewed as call options. The value of such `real options' depends on discretionary future investment by the firm. Issuing risky debt reduces the present market value of a firm holding…
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Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements, and overreaction of stock prices to a series of good or bad news. In this paper, we…
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This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work and on the trade-off between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF)…
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This paper tests whether innovations in macroeconomic variables are risks that are rewarded in the stock market. Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread…
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This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods. We find that the…
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Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational…
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Our article comprehensively reexamines the performance of variables that have been suggested by the academic literature to be good predictors of the equity premium.We find that by and large, these models have predicted poorly both in-sample (IS) and…
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Assistant ProfessorUBI - Universidade da Beira Interior -
Associate ProfessorFundação Getulio Vargas -
Ph.D. StudentTUM School of Management - Chair for Financial Management and Capital Markets -
Ph.D. StudentBangkok, Thailand -
Doctoral Student