RESEARCH INTERESTS

Global Equities, FX, Macro Events, Derivatives, Market Anomalies, Insurance, Household Finance, Credit Risk, Market Design.

WORKING PAPERS

Multinational Firms’ Geographic Segmentation and Exchange-Rate Dynamics

With Jonathan Jona

This version: May 2015

Abstract: This paper investigates the role of currency risk as a source of mispricing in equity markets. Using geographic segment disclosures made by multinational firms headquartered in the United States, I find a strong (weak) correlation between firms' abnormal returns and changes in a measure of their sales-weighted currency returns, contemporaneously (one month ahead). More interestingly, splitting the sample by sales geographic concentration yields a four-factor model abnormal return of 139 basis points (16.68% annualized return), significant at the 1% level and robust to the use of different subsamples. This result corroborates the hypothesis of the inattention of investors on the topic of currency movements, which increases with firm geographic concentration. Using Fama-MacBeth (1973) regressions, I do not find that controlling for a firm's own stock reversal and momentum, as well as industry reversal and momentum, and other regional controls, change the magnitude and significance the results.

How Predictable are Returns Out-of-Sample? Evidence from Value and Momentum

This version: January 2015

Abstract: This paper examines the performance of variables that have been suggested in the literature as being good predictors of the returns of value and momentum equity investment strategies out-of-sample. Using simple linear regression models with shrunk estimators at monthly and annual frequency, I find that, value is predicted by book-to-market, earnings-price ratio, smooth earning-price ratio (Asness et al. (2000) and Cohen et al. (2003)), book-to-market or dividend yield together with earnings price ratio growth, and by different forecast combinations. The results are not robust to leverage constraints (with the exception of lagged returns at monthly frequency) and do not hold for constant volatility portfolios. Momentum is predicted at monthly and annual frequency by book-to-market, at monthly frequency by lagged-one-month return, and at annual frequency by book-to-market together with earnings-price ratio growth. Results are robust to targeted volatility portfolios (Daniel et al. (2013)), but are not robust to leverage constraints, finer portfolios, or industry controls. All other predictors perform poorly, are unstable between sub-samples, and are not robust to various robustness tests. The results suggest links of value to the real economy and that the variety of predictors proposed by the literature are of little value for predicting momentum returns out-of-sample.

Testing Adverse Selection in Life Settlements: The Secondary Market for Life Insurance Policies

With Narayan Y. Naik

* Semifinalist for best paper awards at the 2014 FMA Annual Meeting

This version: December 2013

Abstract: Using a large and comprehensive dataset of 9,002 life insurance policies with aggregate death benefit of $24.14 billion purchased from their original owners between 2001 and 2011, we compute the expected return on individual policies. We find that the primary determinant of the expected return on these life settlement contracts is not adverse selection relative to underlying life expectancies. Instead, we find that other economic phenomenon such as demand for insurance, increasing premium schedules, diversification of unique risks and mitigation of life expectancy estimation risk help explain the cross-sectional variation in expected returns across life settlements contracts.