NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Xiaoji Lin

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

Working Papers and Chapters

June 2014External Equity Financing Shocks, Financial Flows, and Asset Prices
with Frederico Belo, Fan Yang: w20210
The ability of corporations to finance its operations by issuing new equity varies with macroeconomic conditions, because the time varying macroeconomic conditions affect investors’ (or workers’) willingness to pay for new equity. We document that an empirical proxy of the shocks to the cost of equity issuance captures systematic risk in the economy, even controlling for the impact of aggregate productivity (or stock market) shocks. Exposure to this shock helps price the cross section of stock returns including book-to-market, size, investment, debt growth, and issuance portfolios. We then propose a dynamic investment-based model that features an aggregate shock to the firms’ cost of external equity issuance, and a collateral constraint. Our central finding is that time- varying external f...
August 2011Covariances versus Characteristics in General Equilibrium
with Lu Zhang: w17285
We question a deep-ingrained doctrine in asset pricing: If an empirical characteristic-return relation is consistent with investor "rationality," the relation must be "explained" by a risk factor model. The investment approach changes the big picture of asset pricing. Factors formed on characteristics are not necessarily risk factors: Characteristics-based factor models are linear approximations of firm-level investment returns. The evidence that characteristics dominate covariances in horse races does not necessarily mean mispricing: Measurement errors in covariances are more likely to blame. Most important, the investment approach completes the consumption approach in general equilibrium, especially for cross-sectional asset pricing.

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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