Aggregation, Capital Heterogeneity, and the Investment CAPM (with Chen Xue and Lu Zhang)
* 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
* Journal of Finance, Revise & Resubmit
* 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.
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.
Work in Progress
What Moves Equity Markets? A Term Structure Decomposition for Stock Returns
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)