NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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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 an endogenous growth model with debt and equity financing frictions to understand the relation between business cycle fluctuations and long-term growth. The presence of spillover effects from R&D imply an endogenous relation between productivity growth and the state of the economy. A large contractionary shock to equity financing in the 2001 recession led to a persistent growth slowdown that was more severe than in the 2008 recession. Equity (debt) financing shocks are more important for explaining R&D (physical) investment. Therefore, these two financing shocks affect the economy over different horizons.

Published: Francesco Bianchi & Howard Kung & Gonzalo Morales, 2018. "Growth, Slowdowns, and Recoveries," Journal of Monetary Economics, .

 
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