Research

Published/Forthcoming Papers

Aggregation, Capital Heterogeneity, and the Investment CAPM (with Chen Xue and Lu Zhang)

Internet Appendix

     Review of Financial Studies, Forthcoming

Corporate Deleveraging and Financial Flexibility (with Harry DeAngelo and René M. Stulz)

     * Review of Financial Studies, 2018, 31(8): 3122-3174

Working Papers

Can Reinvestment Risk Explain the Dividend and Bond Term Structures?

      * Journal of Finance, Revise & Resubmit

      * Conferences: 2019 MFA, MARC; 2017 FRA, EFA, NFA, FMA, USC Ph.D. Conference in Finance, Trans-Atlantic, and LubraFin

      * Outstanding Paper Award, 68th MFA Meeting

      * Best Paper Award, 14th FRA Michael J. Barclay Award to best young scholar solo-authored paper

      * Best Paper Award, 5th USC Marshall Ph.D. Conference in Finance (Corecipient)___

Abstract: Abstract The term structure of dividend discount rates is downward sloping at long maturities despite the typical upward sloping bond yield curve. I empirically show that reinvestment risk explains both term structure patterns. Intuitively, dividend claims hedge reinvestment risk because dividend present values rise as expected returns decline. This hedge is better with longer-term claims given their higher sensitivity to discount rates, producing a downward sloping dividend term structure. In contrast, bonds are exposed to reinvestment risk because interest rates rise and bond prices fall as expected returns decline. This exposure increases with duration, generating an upward sloping bond term structure.

The Short Duration Premium

      * Conferences: 2020 AFA; 2019 EFA 

Abstract: Stocks of firms with cash flows concentrated in the short-term (i.e., short duration stocks) pay a large premium over long duration stocks. I empirically demonstrate this premium: (i) is long-lived and strong even among large firms; (ii) subsumes the value and profitability premia; and (iii) exposes investors to variation in expected returns, especially in times when the premium is high. These facts are consistent with an intertemporal model in which the marginal (long-term) investor dislikes expected return declines as they lead to lower expected wealth growth. The model also captures the positive relation between risk premia and bond duration.

What Moves Equity Markets? A Term Structure Decomposition for Stock Returns

Abstract: Several papers decompose stock returns into cash flow and discount rate news to study equity market fluctuations. This paper develops and explores an alternative decomposition for stock returns based on the idea that equity volatility must come from variation in the present value of short- and long-term dividends. I find that (i) more than 60% of equity volatility comes from dividends with maturities beyond 20 years and (ii) most of the return volatility associated with short-term dividends comes from cash flow shocks while discount rate news are mainly responsible for return volatility linked to long-term dividends.

Work in Progress

The Equity Discount Rate Curve (with Spencer Andrews)

The Marginal Value of Capital (with Gregory Leonard)

Unsmoothing Returns (with Spencer Couts and Andrea Rossi)

Fundamental Valuation (with Zhengyu Cao, Lu Zhang, and Chen Xue)