Essays in Financial Economics
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CitationChernyakov, Alexander. 2016. Essays in Financial Economics. Doctoral dissertation, Harvard University, Graduate School of Arts & Sciences.
AbstractThis dissertation consists of three essays: Chapters 1 and 2 focus on the impact of cognitive and institutional constraints on stock market efficiency while Chapter 3 examines whether shocks to the real interest rate are a priced state variable.
Chapter 1 is titled "Commodity Inattention": attention is a scarce resource for investors that must be divided among many sources of information. The commodities market is an important source of information affecting firms that operate in the economy. Investors do not fully appreciate this relationship allowing for predictability in equity returns using commodity returns. A strategy that exploits this predictability has an alpha of 1.5% per month and no meaningful factor exposure. This effect is stronger in smaller firms, firms that tend to be ignored by their owners, firms owned by investors who ignore commodity information, firms with nuanced commodity exposure and during times of high informational burden for investors.
Chapter 2 is titled "Market Crash Risk and Slow Moving Capital": index option skew (risk reversal) is a variable commonly looked at by investors to assess market conditions. In the cross-section, value stocks and junk bonds do poorly when the price of risk reversals increases. However, investors are slow to fully incorporate this information into prices leading to significant predictability in value vs. growth stocks as well as junk vs. investment grade bonds. This predictability is economically significant and poses a challenge to strictly rational models of information processing by investors.
Chapter 3 is titled "Is Real Interest Rate Risk Priced? Theory and Empirical Evidence": we propose a model in which real interest rates respond to both expected consumption growth and time preferences. Exposures to future consumption growth and time preference interest rate shocks are both priced, however, the two types of interest rate risk have different prices. The premia for time preference risk are arbitrarily large when EIS is close to 1. Empirically, we find little evidence that interest rate risk is priced in the cross-section of stocks and bonds.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:33840673
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