Thummim Cho

ABSTRACT We propose a novel way to estimate a portfolio's abnormal price , the percentage gap between price and the present value of dividends computed with a chosen asset pricing model. Our method, based on a novel identity, resembles the time‐series estimator of abnormal returns, avoids the issues in alternative approaches, and clarifies the role of risk and mispricing in long‐horizon returns. We apply our techniques to study the cross‐section of price levels relative to the capital asset pric

Abstract We propose a loglinear present-value identity in which investment (“scale”), profitability (“yield”), and discount rates determine a firm’s market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical applications: (1) Both investment and profitability are important contributors to the value spread and stock return news variance. (2) Any cross-sectional return predictability has a mirror image in cas

Using data on asset pricing anomalies, I test the idea that the act of arbitrage turns “alphas” into “betas”: Assets with high initial abnormal returns attract more arbitrage and covary endogenously more with systematic factors that arbitrage capital is exposed to. This channel explains the exposures of 40 anomaly portfolios to aggregate funding liquidity shocks and arbitrageur wealth portfolio shocks. My results highlight that financial intermediaries that act as asset market arbitrageurs not o

This dissertation presents three essays. The first essay finds that investment strategies which generate “alphas” become endogenously risky by acquiring “betas” with respect to shocks that institutional arbitrageurs are exposed to. This essay provides both theoretical and empirical arguments. The second essay finds that exogenous shocks to liquidity demand cause a variation in the reward for aggregate liquidity provision. To draw this conclusion, this essay uses the daily temperature variation w

What makes a country’s stock market more correlated with the U.S. stock market than others? This paper documents and investigates theoretically a strong positive cross-sectional relationship between the share of an equity market held by foreign investors, U.S. investors in particular, and the return correlations of 40 equity markets with the U.S. market. We argue that frictions impeding the cross-border holding of equity are key determinants of cross-border positions and equity market return cor

Abstract We introduce a present-value identity relating a firm’s market value to expected future markups, output growth, discount rates, and investments. Distinguishing current from expected markups reveals five empirical facts: (1) Expected markups account for half the rise in U.S. firm values since 1980. (2) The rise in aggregate expected markups reflects market-share reallocation toward high-expected-markup firms and within-firm increases. (3) Expected markups are linked to intangible investm

Stata and Matlab codes to replicate Tables and Figures in "Scale or Yield? A Present-Value Identity"