Essays on asset pricing: comparisons of factor models, investigations of the roles of illiquidity, R&D investment, product market competition, and labor mobility

Bu, Ziwen (2019) Essays on asset pricing: comparisons of factor models, investigations of the roles of illiquidity, R&D investment, product market competition, and labor mobility. PhD thesis, University of Nottingham.

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Abstract

This thesis comprises three essays in asset pricing, with a focus on scrutinizing factor models and dissecting anomalies. In the first chapter, I compare major factor models and find that the Stambaugh and Yuan (2016) four-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q-factor model takes second place and the Fama and French (2015) five-factor model and the Barillas and Shanken (2018) six-factor model jointly take third place. But the pairwise cross-sectional R^2 and the multiple model comparison tests show that the Hou, Xue, and Zhang (2015) q-factor model, the Fama and French (2015) five-factor and four-factor models, and the Barillas and Shanken (2018) six-factor model take equal first place in the horse race.

The second chapter proposes a model of research and development (R&D) venture, which predicts that the positive relation between the firm's R&D investment and the expected stock returns strengthens with illiquidity. Consistent with the model's prediction, empirical evidence based on cross-sectional regressions and double-sorted portfolios suggests a stronger and positive R&D-return relation among illiquid stocks. A further analysis shows that the important role of illiquidity in the R&D-return relation cannot be explained by factors such as financial constraints, innovation ability, and product market competition. Collectively, the results suggest that stock illiquidity is an independent driver of the R&D premium.

The third chapter investigates whether product market competition explains a significant portion of labor mobility premium. I hypothesize that the positive relation between labor mobility and stock returns is stronger (weaker) among stocks in competitive (concentrated) industries. Consistent with the hypothesis, the results indicate that labor mobility is a significant determinant of stock returns only in the cross-section of stocks in competitive industries, after controlling for size, book-to-market, short-term reversals, and momentum. Overall, these findings suggest that product market competition potentially and independently drives the positive relation between labor mobility and stock returns.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Banerji, Sanjay
Ahmed, Shamim
Keywords: asset pricing; factor models; illiquidity; product market competition; labor mobility
Subjects: H Social sciences > HF Commerce
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 56436
Depositing User: Bu, Ziwen
Date Deposited: 23 Jul 2019 04:40
Last Modified: 07 May 2020 11:31
URI: http://eprints.nottingham.ac.uk/id/eprint/56436

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