Questa tesi comprende due saggi. Il saggio 1 si concentra sull'effetto del rischio macroeconomico su Value Premium. In questo documento, esaminiamo in che misura il Value Premium è influenzato dalla percezione del rischio macroeconomico da parte dell'investitore. Indaghiamo l'impatto dell'effetto macro sui multipli fondamentali che risulta dalla decomposizione market-to-book di Rhodes-Kropf Robinson e Viswanathan (2005). Poiché questi multipli contengono le aspettative degli investitori sia sui tassi di crescita sia sui tassi di sconto, le loro stime variabili nel tempo dovrebbero acquisire informazioni sul sentimento dell'investitore in merito alle prospettive economiche. Scopriamo che il rendimento del Tesoro a 10 anni e la pendenza della Struttura a termine hanno un impatto significativo su diversi multipli fondamentali con un conseguente effetto sulla stima del valore intrinseco dell'impresa. La nostra configurazione empirica ci consente di stimare i componenti di mercato per libro utilizzando valori fondamentali solidi che sono ortogonali agli effetti dell'incertezza macroeconomica. Il nostro risultato chiave è che quando eliminiamo l'effetto delle aspettative degli investitori sullo scenario economico, il premio di valore premia, quasi interamente, il rischio dimensionale. Adeguandosi all'esposizione dimensionale, i multipli di contabilità ortogonale rimuovono l'effetto macro riducendo il rendimento in eccesso di una valutazione errata. Saggio 2 si concentra sull'effetto dei vincoli di leva sul Value Premium. Introduciamo una giustificazione teorica basata sull'avversione dell'investitore nei confronti della leva finanziaria (Frazzini e Pedersen, 2014) e fornendo prove empiriche sulla connessione dell'anomalia a bassa beta e sui rendimenti superiori ottenuti dalle azioni di valore. Studiamo le variazioni nelle serie temporali beta di portafogli ordinate in base al componente stimato dalla decomposizione market-to-book di Rhodes-Kropf Robinson e Viswanathan (2005). Scopriamo che in media i portafogli sottovalutati hanno una beta variabile nel tempo più piccola rispetto a sopravvalutata. Indaghiamo anche la sensibilità della componente di svalutazione delle azioni a bassa beta rispetto ai macro proxy delle condizioni di finanziamento. Coerentemente con la teoria dell'avversione alla leva finanziaria, i risultati empirici mostrano un'interazione negativa tra questa componente e le condizioni di finanziamento che confermano l'effetto negativo sui prezzi per le azioni low-beta quando aumentano le restrizioni sulla leva finanziaria. , costruiamo strategie long-short basate sulla componente di valutazione errata del market-to-book. Il nostro risultato empirico chiave è che l'eccesso di rendimento della componente market-to-book, più attribuibile al prezzo errato dell'impresa, è influenzato negativamente dal peggioramento delle condizioni di finanziamento. Questa evidenza supporta la teoria dell'avversione della leva finanziaria nella spiegazione del rendimento superiore di portafogli sottovalutati. / This thesis includes two essays. Essay 1 concentrates on the effect of macroeconomic risk on Value Premium. In this paper, we examine to what extent the Value Premium is affected by the investor's perception of macroeconomic risk. We investigate the impact of the macro effect on the fundamental multiples which results from the market-to-book decomposition of Rhodes-Kropf Robinson, and Viswanathan (2005). Since these multiples contain investor's expectations both on growth rates and discount rates their time-varying estimates should capture information on the investor's sentiment about economic perspectives. We find that 10 Year Treasury yield and the slope of Term Structure have a significant impact on several fundamental multiples with a consequential effect on the estimate of firm intrinsic value. Our empirical setup allow us to estimate market-to-book components by using firm fundamental values which are orthogonal to the effects of macroeconomics uncertainty. Our key result is that when we remove the effect of investor's expectations on the economic scenario the value premium rewards, almost entirely, the size risk. Adjusting for the size exposure, orthogonal accounting multiples remove the macro effect reducing the excess return of firm misvaluation. Essay 2 focuses on the effect of leverage constraints on the Value Premium. We introduce a theoretical justification based on investor's aversion to leverage (Frazzini and Pedersen, 2014) and by providing empirical evidence about the connection of low-beta anomaly and the superior returns earned by value stocks. We study variations in beta time-series of portfolios sorted on the component estimated by the market-to-book decomposition of Rhodes-Kropf Robinson, and Viswanathan (2005). We find that on average undervalued portfolios have a smaller time-varying beta than overvalued. We also investigate the sensitivity of the misvaluation component of low-beta stocks to macro proxies of funding conditions. Consistently with Leverage Aversion Theory, empirical results show a negative interaction between this component and funding conditions confirming the negative effect on prices for low-beta stocks when leverage constraints increase.To test the effect of leverage constraints on the excess return originated by the firm's mispricing, we construct long-short strategies based on the misvaluation component of market-to-book.Our key empirical result is that the excess return of the market-to-book component, most attributable to the firm's mispricing, is negatively affected by the worsening of funding conditions. This evidence supports the Leverage Aversion Theory in explaining the superior return of undervalued portfolios.

<div>In models of stock returns where investors with extrapolative beliefs on future stocks (e.g., Barberis and Shleifer (2003)), price momentum and the value premium both arise naturally. The key insight from these models is that, the strength and timing of these cross- sectional return anomalies will be conditional on the degree of extrapolative bias. More specifically, higher (lower) degree of over-extrapolation leading to stronger value premium (momentum).</div><div> Using the time-series variation in the degree of over-extrapolation documented in Cassella and Gulen (2018), I first directly test the hypothesis that both value and momentum stem from over-extrapolation in financial markets. I find that the average momentum return is 1.00% (0.10%) per month when the degree of over-extrapolation is low (high), whereas the average value premium is 0.51% (1.29%) per month following low (high) levels of over- extrapolation.</div><div> Furthermore, I extend the model in Barberis and Shleifer (2003) by having both within- equity extrapolators and across asset-class extrapolator. The extension is based on the idea that when extrapolators move capital in and out of the equity market, they disproportionately buy growth stocks in good times and sell value stocks in bad times. The model predicts that the cross-sectional value premium should be stronger following states of large market- wide over- or undervaluation due to additional extrapolative demand to buy or sell. This prediction is tested empirically and I find strong support for it. The value premium is 3.42% per month following market-wide undervaluation and 1.70% per month following market overvaluation. In the remainder 60% to 80% of the sample, when the market is neither significantly over or under-valued, there is no significant value premium in a monthly horizon and the value premium is only 0.54% per month in an annual horizon. I provide some suggestive evidence regarding portfolio return dynamics, investor expectation errors and fund flows that supports the extrapolative demand channel. Overall, this work examines more closely at the effect of extrapolative beliefs on the cross-section of asset prices and offers some support for extrapolation-based asset-pricing theories.</div><div><br></div>

Scholars and investors have studied the value premium for several decades. However, the debate over whether risk factors or biased market participants cause the value premium has never been settled. The risk explanation argues that value firms are fundamentally riskier than growth firms. At the same time, the behavioral explanation argues that biased market participants systematically misprice value and growth stocks. In this paper, I use the implied cost of equity capital to capture all risks that investors demand a premium and sort stocks into risk quantiles. The implied cost of equity capital is estimated using models proposed by Gebhardt et al., Claus and Thomas, Ohlson and Juettner-Nauroth, and Easton. I find that value stocks have higher implied cost of equity capital and lower forecasted earnings growth while growth stocks have lower implied cost of equity capital and higher forecasted earnings growth. More importantly, even within the same risk quantile, the value premium still exists. The results suggest that risk and behavioral factors simultaneously cause the value premium. Furthermore, by decomposing the holding period return, I find that adjustments in valuation ratios caused by negative earnings surprises for growth firms and positive earnings surprises for value firms at least partially lead to the value premium.

<p>My dissertation, consisting of three related essays, aims to understand the role of macroeconomic risks in the stock and bond markets. In the first chapter, I build a financial intermediary sector with a leverage constraint a la Gertler and Kiyotaki (2010) into an endowment economy with an independently and identically distributed consumption growth process and recursive preferences. I use a global method to solve the model, and show that accounting for occasionally binding constraint is important for quantifying the asset pricing implications. Quantitatively, the model generates a procyclical and persistent variation of price-dividend ratio, and a high and countercyclical equity premium. As a distinct prediction from the model, in the credit crunch, high TED spread, due to a liquidity premium, coincides with low stock price and high stock market volatility, a pattern I confirm in the data.</p><p>In the second chapter, which is coauthored with Hengjie Ai and Mariano Croce, we model investment options as intangible capital in a production economy in which younger vintages of assets in place have lower exposure to aggregate productivity risk. In equilibrium, physical capital requires a substantially higher expected return than intangible capital. Quantitatively, our model rationalizes a significant share of the observed difference in the average return of book-to-market-sorted portfolios (value premium). Our economy also produces (1) a high premium of the aggregate stock market over the risk-free interest rate, (2) a low and smooth risk-free interest rate, and (3) key features of the consumption and investment dynamics in the U.S. data.</p><p>In the third chapter, I study the joint determinants of stock and bond returns in Bansal and Yaron (2004) long-run risks model framework with regime shifts in consumption and inflation dynamics -- in particular, the means, volatilities, and the correlation structure between consumption growth and inflation are regime-dependent. This general equilibrium framework can (1) generate time-varying and switching signs of stock and bond correlations, as well as switching signs of bond risk premium; (2) quantitatively reproduce various other salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curve, the violation of expectations hypothesis of bond returns. The model shows that term structure of interest rates and stock-bond correlation are intimately related to business cycles, while long-run risks play a more important role to account for high equity premium than business cycle risks.</p> / Dissertation

This thesis examines three aspects of capital structure of manufacturing, mining and retail firms listed on Johannesburg Securities Exchange (JSE). Firstly, it tests for the validity of the pecking order, the static trade-off and the dynamic trade-off theories in the context of South African manufacturing, mining and retail firms. The study used data from 42 manufacturing, 24 mining and 21 retail firms with complete data for four or more consecutive years during 2000-2010 (panel 1) to test the validity of these theories. The research hypotheses were formulated and tested using generalised least squares (GLS) random effects, maximum likelihood (ML) random effects, fixed effects, Prais-Winsten regression, Arellano and Bond, Blundell and Bond and the random effects Tobit models. Secondly, the thesis examines the impact of the firm’s key financial performance variables on firm leverage and speed of target adjustment. A panel of 49 manufacturing, 24 mining and 23 retail firms with complete data for two or more consecutive years during the period 2005-2010 (panel 2) was constructed and used in this test. The research hypotheses were formulated and tested using the same regression models used in panel 1. Lastly, the thesis examines the existence of the discounted value premium in manufacturing, mining and retail firms listed on the JSE. This study was done using panel of 47 manufacturing, 31 mining and 20 retail firms with complete data for four or more consecutive years during the period 2006-2010. A simple t-test was used to evaluate the significance of the sample’s discounted value premium. The study documents that firm growth rate, non-debt tax shields, financial distress, profitability, capital expenditure, asset tangibility, price earnings, ordinary share prices and changes in working capital were significant predictors of firm leverage. Dividend paid, capital expenditure, firm growth rate, profitability, cash flow from operations and economic value added were positively correlated to leverage. Asset tangibility, firm profitability, non-debt tax shields, financial distress, liquidity, price earnings, share price and retention rate were negatively correlated to leverage. Asset tangibility, financial distress, firm growth, non-debt tax shields, and long-term debt repaid were negatively correlated to changes in debt issued, whilst profitability, actual dividend paid, capital expenditure and changes in working capital were positively correlated. These results confirm the complementary nature of the trade-off and pecking order theories. Furthermore, the firms had positive and significant speeds of adjustment. In panel 1, the true speed of adjustment for the sample was 57.64% (0.81 years) for book-to-debt ratio (BDR) and 42.44% (1.25 years) for market-to-debt (MDR). The speed for manufacturing firms was 45.08% (1.16 years) for BDR and 44.59% (1.17 years) for MDR; for mining firms, 72.07% (0.54 years) for BDR and 56.45% (0.83 years) for MDR; and for retail firms, 28.42% (2.07 years) for BDR and 42.48% (1.25 years) for MDR. In panel 2, the true speed of adjustment for the sample was 64.20% for book-to-debt ratio (BDR) and 28.11% for market-to-debt ratio (MDR). The true speed for manufacturing firms was 34.42% for BDR and 30.56% for MDR; for mining firms, 69.59% for BDR and 45.77% for MDR; and for retail firms, 9.34% for BDR. These results confirm the validity of the dynamic trade-off theory. Finally, manufacturing, mining and retail firms had a positive discounted value premium. This ranged from 5.16% to 9.48% (on perpetual growth), with mining firms having the largest (9.48%), followed by manufacturing (8.54%) and retail firms (5.16%). Of the observations for the full sample, 92.23% showed a positive discounted value premium. This evidence on the speed of adjustment and discounted value premium suggests the existence of a target capital structure different from the theoretical optimal capital structure hypothesised by the static trade-off theory. / Thesis (PhD)--University of Pretoria, 2013. / Financial Management / unrestricted

Thesis advisor: Jeffrey J.P. Pontiff / My dissertation includes three chapters on the value premium. In the first chapter, I study whether seemingly innocuous decisions in the construction of the original HML portfolio (Fama and French, 1993) affect our inference on the value premium. I find that the value premium is dramatically smaller than we thought. In sample, the average estimate of the value premium is 0.09% per month smaller than the original estimate of the value premium. Out of sample, however, the difference is statistically insignificant. The results suggest that the original value premium estimate is upward biased because of a chance result in the original research decisions. In the second chapter, I propose an estimate for intangible assets and growth opportunities and examine if this estimate improves book-to-market equity as a measure of value. I find that portfolios sorted on book equity plus the estimate to market equity have lower returns than portfolios sorted on book-to-market equity. The results suggest that intangible assets and growth opportunities diminish book-to-market equity as a measure of value because investors value intangible assets and growth opportunities in an overly optimistic way. In my third chapter, I simultaneously study nine explanations of the value effect to better understand what the dominant value explanation is. I find that duration accounts for most of the value effect and that the eight other explanations account for a negligible part of it. The results suggest that duration is the dominant explanation of the value effect. / Thesis (PhD) — Boston College, 2021. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

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