Essays in finance
Description
In the first chapter, I develop a representative agent model in which the purchase of consumption goods must be planned in advance. Volatility in the agent's portfolio increases the risk that a purchase cannot be implemented. This implementation risk causes the agent to make conservative consumption plans. In the model, this leads to persistent and negatively skewed consumption growth and a slow reaction of consumption to wealth shocks. The model proposes a novel explanation for the negative relation between volatility and expected utility. In equilibrium, prices of risky assets must compensate for the utility loss. Hence, the model suggests a new mechanism for generating the equity risk premium. Importantly, because implementation risk does not rely on the co-movement of asset prices with marginal utility, the resulting equity premium does not require concavity of the intratemporal utility function.
In the second chapter, I challenge the view that equity market timing always benefits
shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.
In the second chapter, I challenge the view that equity market timing always benefits
shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.
Date Created
The date the item was original created (prior to any relationship with the ASU Digital Repositories.)
2015
Agent
- Author (aut): Wan, Pengcheng
- Thesis advisor (ths): Boguth, Oliver
- Thesis advisor (ths): Tserlukevich, Yuri
- Committee member: Babenka, Ilona
- Publisher (pbl): Arizona State University