Skip to Main Content
 

Global Search Box

 
 
 
 

Files

File List


Dissertation.pdf (1.98 MB)

ETD Abstract Container

Abstract Header

Essays in Financial Economics

Salem Goncalves, Andrei
http://orcid.org/0000-0002-6872-5361
http://rave.ohiolink.edu/etdc/view?acc_num=osu1524063057848301

Abstract Details

2018, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation consists of three chapters that aim to understand the connection between asset prices and the fundamental properties of cash flows and firms. In the first chapter, I study the link between cash flow maturity and discount rates in the aggregate U.S. equity market. Contradicting leading asset pricing models, recent evidence indicates the term structure of dividend discount rates is downward sloping at long maturities despite the typical upward sloping bond yield curve. I show that reinvestment risk explains both the dividend and bond term structures. Intuitively, dividend claims hedge reinvestment risk because dividend present values rise as expected returns decline. This hedge is more effective for longer-term claims because they are more sensitive to discount rate variation, resulting in a downward sloping dividend term structure. For bonds, as expected equity returns decline, nominal interest rates rise, and bond prices fall. Consequently, bonds are exposed to reinvestment risk, and this exposure increases with duration, giving rise to an upward sloping bond term structure. In the second chapter, I examine the impact of cash flow maturity on risk premium at the firm level. Stocks of firms with cash flows concentrated in the short-term (i.e., short duration stocks) pay a large premium relative to long duration stocks. I empirically demonstrate this premium: (i) is long-lived and strong even among the largest firms; (ii) exposes investors to variation in expected returns (i.e., reinvestment risk); and (iii) is much higher in periods in which it exposes investors to more reinvestment risk. All of these facts are consistent with a simple intertemporal model in which reinvestment risk is priced and help to connect the cross-section of stock returns with the recent evidence on the term structure of risk premia. I also empirically show that the value and profitability premia can be explained by the lower cash flow duration of value and profitable companies. In the third chapter, co-authored with Chen Xue and Lu Zhang, we investigate the connection between firms' investment decisions and their expected returns. We provide a careful treatment of aggregation, and to a lesser extent, capital heterogeneity in the investment CAPM. Firm-level investment returns are constructed from firm-level variables, and aggregated to the portfolio level to match with portfolio-level stock returns. Current assets form a separate production input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums simultaneously, and partially explains the positive stock-investment return correlations, the procyclical and short-term dynamics of the momentum and profitability premiums, and the countercyclical and long-term dynamics of the value and investment premiums. However, the model fails to explain momentum crashes.
René Stulz (Committee Co-Chair)
Lu Zhang (Committee Co-Chair)
Kewei Hou (Committee Member)
250 p.
Economics; Finance

Recommended Citations

Citations

  • Salem Goncalves, A. (2018). Essays in Financial Economics [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1524063057848301

    APA Style (7th edition)

  • Salem Goncalves, Andrei. Essays in Financial Economics. 2018. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1524063057848301.

    MLA Style (8th edition)

  • Salem Goncalves, Andrei. "Essays in Financial Economics." Doctoral dissertation, Ohio State University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=osu1524063057848301

    Chicago Manual of Style (17th edition)

osu1524063057848301
1,105
© 2018, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.