Zhang, and Yifan Zhu)Ībstract: We investigate the joint asset pricing effects of variable costs and fixed costs in a firm's production process. ![]() "Operating leverage and asset pricing anomalies" (with Leonid Kogan, Harold H. Presented at Arrowstreet Capital, BI Norwegian Business School, City University of London, Peking University HSBC Business School, Babson University, Chinese University of Hong Kong, Hong Kong Baptist University, and Southern University of Science and Technology, American Finance Association annual meeting, European Finance Association annual meeting, Financial Intermediation Research Society meeting, China International Conference in Finance, Midwest Finance Association annual meeting, and UNSW Asset Pricing Workshop.ġ. Revise & resubmit at Journal of Finance, They imply that segmentation between the two markets is prevalent at firm level. These findings on asset pricing dynamics and corporate financing behavior are consistent with DES capturing relative mispricing between debt and equity. Furthermore, high-DES firms tend to have more negative growth forecast revisions, are more likely to issue equity and retire debt, and have more insider equity selling. DES predicts the cross section of stock and bond returns in opposite directions, with stronger results among smaller, less liquid, and more difficult-to-short stocks and bonds, and the predictability cannot be explained by exposures to a variety of risk factors. "The debt-equity spread" (with Hui Chen and Zhiyao Chen)Ībstract: We propose a measure of valuation gap between debt and equity, the debt-equity spread (DES), based on the difference between actual and equity-implied credit spreads. Presented at the Conference in Financial Economics and Accounting, the 18th Annual Conference in Financial Economics Research by Eagle Labs, 14th Florida State University Truist Beach Conference, China Interantional Conference in Finance, and Midwest Finance Association annual meeting, European Finance Association Meeting, Northern Finance Association Meeting, and Econometric Society Asian Meeting.Ģ. Our results support the q-theory based explanation for the asset growth effect. Furthermore, we document compelling evidences for the model's prediction that the asset growth effects are more prominent among firms with low asset imbalance. Empirically, once controlling for this comovement, the return predictive power of current and long-term asset growths substantially improves. Part of this comovement is cancelled out in the total asset growth, giving rise to its stronger return predictive power. A novel asset imbalance channel creates negatively correlated comovement between current and long-term asset growths that are unrelated to the discount rate effect. We find this simple extension is capable of explaining the stronger return predictive power of total asset growth than current and long-term asset growths. ![]() "Asset growth effect and Q theory of investment" (with Leonid Kogan and Xiaotuo Qiao) Ībstract: We extend the standard q theory of investment into a two-capital setup in which firms use both physical capital (long-term asset) and short-term capital (current asset) as production inputs.
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