NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Frederico Belo

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Working Papers

June 2014External Equity Financing Shocks, Financial Flows, and Asset Prices
with Xiaoji Lin, 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...
October 2012Endogenous Dividend Dynamics and the Term Structure of Dividend Strips
with Pierre Collin-Dufresne, Robert S. Goldstein: w18450
Many leading asset pricing models predict that the term structures of expected returns and volatilities on dividend strips are strongly upward sloping. Yet the empirical evidence suggests otherwise. This discrepancy can be reconciled if these models replace their exogenously specified dividend dynamics with processes that are derived endogenously from capital structure policies that generate stationary leverage ratios. Under this policy, shareholders are being forced to divest (invest) when leverage is low (high), which shifts risk from long-horizon to short-horizon dividend strips. This framework also generates stock volatility that is higher than long-horizon dividend volatility, even with constant market prices of risk.
September 2010Cross-sectional Tobin's Q
with Chen Xue, Lu Zhang: w16336
The neoclassical investment model matches cross-sectional asset prices both in first differences and in levels. With ten book-to-market deciles as the testing portfolios, the investment model largely matches the Tobin’s Q spread and the average return spread across the extreme deciles. The parameter estimates imply low adjustment costs around 1.7% of sales. The model’s fit results from three aspects of our econometric strategy: (i) We test the model at the portfolio level to alleviate the impact of measurement errors; (ii) we match the first moment to mitigate the impact of temporal misalignment between asset prices and investment; and (iii) we allow for nonlinear marginal costs of investment. Our evidence suggests that any differences between the intrinsic value of equity and the market v...

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