NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Howard Kung

London Business School
Regent's Park, Sussex Place
London NW1 4SA
United Kingdom

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NBER Working Papers and Publications

March 2015The CAPM Strikes Back? An Investment Model with Disasters
with Hang Bai, Kewei Hou, Lu Zhang: w21016
Value stocks are more exposed to disaster risk than growth stocks. Embedding disasters into an investment-based asset pricing model induces strong nonlinearity in the pricing kernel. Our single-factor model reproduces the failure of the CAPM in explaining the value premium in finite samples in which disasters are not materialized, and its relative success in samples in which disasters are materialized. The relation between pre-ranking market betas and average returns is flat in simulations, despite a strong positive relation between true market betas and expected returns. Evidence in the long U.S. sample from 1926 to 2014 lends support to the model’s key predictions.
December 2014Growth, Slowdowns, and Recoveries
with Francesco Bianchi, Gonzalo Morales: w20725
We construct and estimate a model that features endogenous growth and technology adoption to study the link between business cycle fluctuations and long-term growth since WWII. The presence of spillover effects from research and development (R&D) imply an endogenous relation between productivity growth and the state of the economy. During the Great Recession, the endogenous component of TFP dropped precipitously, while R&D and long-term growth were not equally affected. The opposite occurred during the 2001 recession, which corresponded to a large decline in R&D. We interpret these results in light of the different forms of financing for investment in physical capital versus R&D. Monetary and fiscal interventions mitigated the drop in real activity and adoption of existing technologies. Du...
 
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