I am a Ph.D. candidate in Financial Economics at the Yale School of Management. My research interests include asset pricing, financial intermediation, and macrofinance.
Previously, I worked in the global economics research group at Goldman Sachs in New York. I studied statistics and economics at Yale as an undergraduate.
Zombie Asset Pricing, July 2019.
Japanese equities have low momentum and high value because of zombie firms, themselves born of regulatory forbearance and subsidized credit from banks. Controlling for the prevalence of Japanese zombies, I find that the momentum premium in Japan is in line with momentum premia in the US, UK, and Europe. Forbearance plays a role in why zombies impact Japanese equity returns. Zombie losers have high bank beta: when banks perform well, zombie losers have high returns, which drags down momentum in Japan. In the cross-section, zombie returns are priced by an intermediary SDF, while non-zombie returns are not. This result is in part because zombies are more bank-intermediated than non-zombies. Zombies ultimately arise from regulatory forbearance and government support in Japan, and a Japanese government risk factor prices zombie portfolio returns.
U.S. companies hold cash on their balance sheets, and the share of assets held in cash varies across companies and over time. A firm’s cash holdings is an implicit holding in a low-return asset, which pushes down a firm’s common stock return, and investors should thus hedge out the cash on the balance sheets when calculating equity returns. Failing to do so has implications for portfolio formation and optimization, asset pricing models, and trading strategy performance. We show that neglecting to consider cash holdings results in biases in portfolio optimization, factor creation, and cross-sectional asset pricing. We decompose common stock market betas into components, which depend on the portfolio’s cash holding, the return on cash, and the portfolio’s cash-hedged equity return. We create a cash-hedged market factor and show this better explains the cross-sectional variation in portfolio returns than the standard market factor. Finally, we show the implications of creating and using cash-hedged factors and test assets. Cash-hedged factors and portfolios increase Sharpe ratios of factors across the board and motivate the creation of new factor based on cash-holdings of firms.