Skip to Main Content
 

Global Search Box

 
 
 
 

Files

File List


Dissertation_July.pdf (845.64 KB)

ETD Abstract Container

Abstract Header

Essays on the Cross-section of Returns

Koh , Woo Hwa
http://rave.ohiolink.edu/etdc/view?acc_num=osu1436980305

Abstract Details

2015, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation examines what factors determine the cross-section of returns. It contains three chapters. Chapter 1 investigates whether uncertainty shocks can explain the value premium puzzle. Intuitively, the value of growth options increases when uncertainty is high. As a result, growth stocks hedge against uncertainty risk and earn lower risk premiums than value stocks. An investment-based asset pricing model augmented with time-varying uncertainty accounts for both the value premium and the empirical failure of the capital asset pricing model (CAPM). This study also shows that uncertainty shocks influence cross-sectional investment. Uncertainty has a negative impact on the investment of value firms, while it has a positive impact on the investment of growth firms. Chapter 2 shows that uncertainty shocks can explain the negative relation between idiosyncratic volatility and expected returns in Ang, Hodrick, Xing and Zhang (2006, 2009). The main intuition is that idiosyncratic volatility amplifies the positive impact of uncertainty shocks on the value of growth options. Therefore, everything else being equal, growth stocks with higher idiosyncratic volatilities perform better than growth stocks with lower idiosyncratic volatilities when uncertainty is high, and consequently have lower expected returns. Using an investment-based asset pricing model with time-varying uncertainty, I show that the idiosyncratic volatility puzzle exists only in stocks with low book-to-market ratios (growth stocks). The spread in loadings on uncertainty shocks can explain why growth stocks with high idiosyncratic volatilities earn lower average returns than those with low idiosyncratic volatilities. In Chapter 3, co-authored with Kewei Hou, Chen Xue, and Lu Zhang, we hand-collect data on total assets and earnings from Moody's Industrial Manual to extend the sample for the q-factors back to 1926. We also compare the q-factor model with the Carhart (1997) model in capturing anomalies in the long sample.
Lu Zhang (Committee Chair)
Xiaoji Lin (Committee Member)
Ingrid Werner (Committee Member)
114 p.
Finance
Asset pricing, Investment-based asset pricing model, uncertainty shocks, value premium puzzle, idiosyncratic volatility puzzle

Recommended Citations

Citations

  • Koh , W. H. (2015). Essays on the Cross-section of Returns [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1436980305

    APA Style (7th edition)

  • Koh , Woo Hwa. Essays on the Cross-section of Returns. 2015. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1436980305.

    MLA Style (8th edition)

  • Koh , Woo Hwa. "Essays on the Cross-section of Returns." Doctoral dissertation, Ohio State University, 2015. http://rave.ohiolink.edu/etdc/view?acc_num=osu1436980305

    Chicago Manual of Style (17th edition)

osu1436980305
708
© 2015, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.