Anderson School of Management
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Los Angeles, CA 90095
Information about this author at RePEc
NBER Working Papers and Publications
|August 2013||Financial Market Shocks and the Macroeconomy|
with Sheridan Titman: w19383
Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with incumbent publicly traded firms and privately held new entrants. In this setting the equilibrium relation among stock prices and both future dividends and aggregate output depends on the strategic environment in which these firms operate. In general, under reasonable conditions, the relations between prices, dividends, and economic output in our framework are consistent with empirical evidence in the macroliterature. We also generate new, potentially testable, implications.
Published: Avanidhar Subrahmanyam & Sheridan Titman, 2013. "Financial Market Shocks and the Macroeconomy," Review of Financial Studies, Society for Financial Studies, vol. 26(11), pages 2687-2717. citation courtesy of
|March 2000||Covariance Risk, Mispricing, and the Cross Section of Security Returns|
with Kent D. Daniel, David Hirshleifer: w7615
This paper offers a multisecurity model in which prices reflect both covariance risk and misperceptions of firms' prospects, and in which arbitrageurs trade to profit from mispricing. We derive a pricing relationship in which expected returns are linearly related to both risk and mispricing variables. The model thereby implies a multivariate relation between expected return, beta, and variables that proxy for mispricing of idiosyncratic components of value tends to be arbitraged away but systematic mispricing is not. The theory is consistent with several empirical findings regarding the cross-section of equity returns, including: the observed ability of fundamental/price ratios to forecast aggregate and cross-sectional returns, and of market value but not non-market size measures to fore...