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Description
This dissertation consists of three essays studying topics in financial economicsthrough the lens of quantitative models. In particular, I provide three examples of the
effective use of data in the disciplining of financial economics models. In the first essay,
I provide evidence of a significant transitory component of aggregate equity payout.
Leading asset pricing models assume exogenous dividend growth processes which are
inconsistent with this fact. I find that imposing market clearing for consumption
and income in these models induces the relevant behaviors in dividend growth, even
when dividend growth is obtained indirectly. In the second essay, I provide a novel
decomposition of the unconditional equity risk premium. In the data, the majority of
the equity premium is attributable to moderate left tail risks, not those associated
with disaster states. In stark contrast to the data, leading asset pricing models do
not predict that this intermediate left tail region meaningfully contributes to the
equity premium. The shortcomings of the models can be pinned on unreasonably low
prices of risk for tail events relative to the data. In the third essay, I document a
large dispersion in household allocations to risky assets conditional on age. I show
that while standard household portfolio choice models can be made to match the
average risky share over the lifecycle, the models fall short of generating sufficient
heterogeneity in the cross-section of household portfolios.
ContributorsBeason, Tyler (Author) / Mehra, Rajnish (Thesis advisor) / Wahal, Sunil (Thesis advisor) / Pruitt, Seth (Committee member) / Schreindorfer, David (Committee member) / Arizona State University (Publisher)
Created2021
Description
This dissertation consists of three essays studying the relationship between corporate finance and monetary policy and macroeconomics. In the first essay, I provide novel estimations of the monetary policy’s working capital channel size by estimating a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill is borrowed. But the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. These results provide evidence that monetary policy could have varying effects across industries through the working capital channel. In the second essay, I study the effects of the Unconventional Monetary Policy (UMP) of purchasing corporate bonds on firms’ decisions in the COVID-19 crisis. Specifically, I develop a theoretical model which predicts that the firm’s default probability plays a crucial role in transmitting the effects of COVID-19 shock and the UMP. Using the model to evaluate two kinds of heterogeneities (size and initial credit risk), I show that large firms and high-risk firms are more affected by COVID-19 shock and are more responsive to the UMP. I then run cross-sectional regressions, whose results support the theoretical predictions suggesting that the firm’s characteristics, such as assets and operating income, are relevant to understanding the UMP effects. In the third essay, I document that capital utilization and short-term debt are procyclical. I show that a strong positive relationship exists at the aggregate and firm levels. It persists even when I control the regressions for firm size, profits, growth, and business cycle effects. In addition, the Dynamic Stochastic General Equilibrium (DSGE) model shows that in the presence of capital utilization, positive real and financial shocks cause the firm to change its financing of the equity payout policy from earnings to debt, increasing short-term debt.
ContributorsGalindo Gil, Hamilton (Author) / Pruitt, Seth (Thesis advisor) / Schreindorfer, David (Thesis advisor) / Bessembinder, Hendrik (Committee member) / Mehra, Rajnish (Committee member) / Arizona State University (Publisher)
Created2022