Research




Andrea L. Eisfeldt

Laurence D. and Lori W. Fink Endowed Chair in Finance

UCLA Anderson and NBER



Curriculum Vitae


Media and Online Lectures


Bio:


Andrea Eisfeldt is the Laurence D. and Lori W. Fink Endowed Chair in Finance at the UCLA Anderson School of Management.  Her research focuses on the relationship between financial markets and the macroeconomy.  Recent work includes studies of measures of credit risk and financial crises, fragility in over-the-counter derivatives markets, returns to mortgage-backed securities, and bank valuation.  Eisfeldt’s research has been twice been awarded an Amundi Smith Breeden prize in the Journal of Finance.  Her work has also been awarded the Jensen Prize in the Journal of Financial Economics, and grants from the National Science Foundation Grant and the Banque du France.  She currently serves on the board of the American Finance Association.  Eisfeldt is a research associate at the National Bureau of Economic Research in the Corporate Finance, Asset Pricing, and Economic Fluctuations and Growth working groups.  Eisfeldt serves as an Associate Editor at the Journal of Monetary Economics, American Economic Journal: Macroeconomics, and the Review of Economic Dynamics.   She served as a founding Board member, and as President, of the Macro Finance Society, and is a member of the Macro Financial Modeling Executive Group.  She has also served on the Board of Directors for the Gutmann Center for Portfolio Management, the Chicago Research Data Center of the US Census, and the Western Finance Association.   Prior to her appointment at UCLA, Eisfeldt was a tenured Associate Professor at the Kellogg School of Management at Northwestern University.  Eisfeldt earned a B.S. with highest honors from the College of Commerce at the University of Illinois at Urbana-Champaign, and received her M.A. and Ph.D. in economics from the University of Chicago.  



Working Papers:



"Intangible Value" with Edward Kim and Dimitris Papanikolaou.

Featured in Bank of America Securities Scientific Insights January 2021.


Intangible assets are absent from traditional measures of value, despite their very large (and growing) importance in firms' capital stocks. As a result, the fundamental anchor for value that uses book assets is mismeasured. We propose a simple improvement to the classic value factor (HMLFF) proposed by Fama and French (1992, 1993). Our intangible value factor, HMLINT, prices assets as well as or better than the traditional value factor but yields substantially higher returns. This outperformance holds over the entire sample, as well as in more recent decades in which value has underperformed. We show that this is likely due to the intangible value factor sorting more effectively on productivity, profitability, financial soundness, and on other valuation ratios such as price to earnings or price to sales.


The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of “human capitalists.” We show that high-skilled labor earns substantial income in the form of equity claims to firms’ future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing almost 45% of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor’s share of income relative to total value added since the 1980s by over 60%. The inclusion of equity-based compensation also reverses the otherwise declining share of high-skilled labor. Our structural estimation using total income supports complementarity between high-skilled labor and physical capital. We also provide additional regression evidence of such complementarity.



We provide quantitative estimates of the systemic effects of exit by a key over-the-counter (OTC) intermediary. In our model, risk-averse traders are connected by a core-periphery network. We show that if traders are also averse to concentrated bilateral exposures -- an assumption that we show is supported empirically -- then the incompleteness of the network prevents market participants from fully sharing risks. We quantify the impact of the network structure on prices using the closed-form solution to our model along with proprietary data on all credit default swap (CDS) transactions in the U.S. from 2010-2013. Akin to a stress test, we study how the removal of a single institution affects market outcomes. By our estimates, there are a small number of key OTC intermediaries whose exit can move markets dramatically. Eliminating such a dealer from our calibrated model leads to an increase in credit spreads of over 20%. 


"Complex Asset Markets" (with Hanno Lustig and Lei Zhang

Executive Summary and Video Interview at NBER.  Journalist summary at Anderson Review.


Complex assets appear to have high average returns and high Sharpe ratios. However, despite these attractive attributes, participation in complex assets markets is very limited.  We argue that this is because investing in complex assets requires a model, and investors' individual models expose them to investor-specific risk.  Investors with higher expertise have better models, and thus face lower risk. We construct a dynamic economy in which the joint distribution of wealth and expertise determines aggregate risk bearing capacity in the long-run equilibrium. In this equilibrium, more complex asset markets, i.e. those which are more difficult to model, have lower participation rates, despite having higher market-level Sharpe ratios, provided that asset complexity and expertise are complementary. In this case, higher expert demand reduces equilibrium required returns, depressing overall participation. Thus, our theory explains why complex assets can have ``permanent alpha'', despite free entry.



"Total Returns to Single Family Rentals" (with Andrew Demers) 

Featured in CityLab and USA Today.  Journalist summary at Anderson Review.


We develop the stylized facts describing the returns to Single Family Rental assets, including both dividends from rental yields and capital gains from house price appreciation.  Our study is over a long time period, and includes a broad and granular cross section, down to the house level in recent years.



Publications:

"The Cross Section of MBS Returns" with Peter Diep and Scott Richardson (Journal of Finance, Forthcoming)


We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns. We measure prepayment risk and estimate security risk loadings using real data on prepayment forecasts vs. realizations.  Prepayment risks appear to be priced by specialized MBS investors. In particular, we find convincing evidence that prepayment risk prices change sign over time with the sign of the a representative MBS investor's exposure to prepayment risk.


"Government Guarantees and the Valuation of American Banks" with Andrew Atkeson, Adrien d'Avernas, and Pierre-Olivier Weill (NBER Macroeconomics Annual, 2018)


Banks’ ratio of market equity to book equity was close to one until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to one after the 2008 financial crisis. We decompose this variation into two components, franchise value and the value of government guarantees or subsidies.  We use a structural valuation framework and bank accounting and capital market data to execute our decomposition.


"Capital Reallocation" with Yu Shi (Annual Review of Financial Economics, 2018) Online Appendix


"Comment on The Rise of Global Corporate Saving, by Peter Chen, Loukas Karabarbounis, and Brent NeimanSAS Code US Corporate Flows Data
Journal of Monetary Economics, Volume 89, August 2017 pages 20-24.


"Measuring the Financial Soundness of US Firms 1926-2012" (with Andrew Atkeson and Pierre-Olivier Weill)

Research in Economics, Volume 71, September 2017 pages 613-635.


We develop a simple, transparent, and robust method, "Distance to Insolvency", for measuring the financial soundness of individual firms using data on their equity volatility, building on the Merton (1974) and Leland (1994) structural models of credit risk.   We define Distance to Insolvency as the percentage drop in asset value that renders the firm insolvent, measured in units of the firm’s asset standard deviation.  We define insolvency crises as times in which the median firm has a distance to insolvency below one.


                    Insolvency Crises 1929-2012:  Median Distance below 1.



"Aggregate External Financing and Savings Waves" (with Tyler MuirEisfeldt Muir Cost of External Finance Data  Online Appendix  

Journal of Monetary Economics, Volume 84, December 2016 pages 116-133.


We use a structural model, along with information in the cross-section regarding firms' uses of the funds they raise, in order to construct a time series measure of the aggregate cost of external finance for US firms.   

 


    Estimated Average Cost of External Finance: US Firms 1980-2010


"Entry and exit in OTC Derivatives Markets" (with Andrew Atkeson and Pierre-Olivier Weill)

Econometrica, November 2015, 2231-2292.

Online Appendix 

We develop a new framework to address the positive and normative issues surrounding OTC derivatives markets, focusing on entry and exit incentives.  We address market resiliency following shocks.   See also our policy commentary on Voxeu.org.  Working Paper The Market for OTC Intermediaries contains stylized facts and positive results.



"The Value and Ownership of Intangible Capital(with Dimitris Papanikolaou.)

American Economic Review, Papers and Proceedings, May 2014, 189-194.


We use a simple model of the sharing rule between key labor inputs and capital owners, along with accounting data, to measure the fraction of the US capital stock which is owned by key labor and thus missing from book and market values.


Eisfeldt Papanikolaou Aggregate and Industry Organization Capital Data




Organization Capital and the Cross-Section of Expected Returns  (with Dimitris Papanikolaou.)

Amundi Smith Breeden First Place Paper Award 2013.

Journal of Finance, August 2013, 1365-1406.


The supplementary appendix contains further details. 

Code, test assets, and portfolio returns update October 2020 (with thanks to Anderson PhD student Dongryeol Lee.)

The UCLA Anderson Blog provides a general audience summary.

We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from the shareholders' perspective. We find that firms with more organization capital have risk adjusted returns that are 4.7% higher than firms with less organization capital.



CEO Turnover in a Competitive Assignment Framework” (with Camelia Kuhnen)

Journal of Financial Economics, August 2013, 351-372.


We show that both absolute and relative performance driven turnover can be natural and efficient outcomes of a competitive assignment model in which CEOs and firms form matches based on multiple characteristics which are either general or firm-specific, and provide unique empirical support for our model.


Eisfeldt Kuhnen CEO Turnover Data:  CSV, Tab Delimited Text

 

Leasing, Ability to Repossess, and Debt Capacity.” (with Adriano Rampini.)
Review of Financial Studies, April 2009, 1621-1657.

We show theoretically why financially constrained firms lease vs. buy, and provide supporting empirical evidence for the key predictions of our model using census data.


Managerial Incentives, Capital Reallocation, and the Business Cycle.” (with Adriano Rampini.)
Jensen Prize 2008, second place.
Journal of Financial Economics, January 2008, 177-199.

We develop an analytical characterization of the effect of agency costs on capital reallocation and aggregate productivity to show that the agency problem between owners and managers makes bad times worse because capital is less productively deployed.  We quantitatively measure the impact of misallocation in the cross section on aggregate productivity.


New or Used? Investment with Credit Constraints.” (with Adriano Rampini.)
Journal of Monetary Economics, November 2007, 2656-2681.
(Supplementary appendix.)

We argue that the timing of investment cash outflows makes used capital attractive to financially constrained firms, since constrained firms discount future maintenance outflows more heavily.  Using census data, we provide empirical support for our model's main predictions.


Smoothing with Liquid and Illiquid Assets.”
Journal of Monetary Economics, September 2007, 1572-1586.
(Supplementary appendix.)

Explains that the low demand for liquid assets by consumer-savers is due to that fact that, with standard preferences, the auto-correlation of savings is an order of magnitude larger than that of income.  Thus, under any reasonable calibration of standard consumption-savings models, consumers' savings are much to smooth to induce substantial liquidity demand.


Capital Reallocation and Liquidity.” (with Adriano Rampini.)
Journal of Monetary Economics, April 2006, 369-399. (Lead Article)

See updated time series, and a link to Eisfeldt Rampini Capital Reallocation Data, below.  For a review of recent research and future research directions, see Capital Reallocation, with Yu Shi.

Documents the fact that the amount of capital reallocation between firms is procyclical, whereas measures of productivity dispersion are countercyclical.  Uses a quantitative dynamic model to infer the aggregate dynamics for capital liquidity that reconciles these facts, and argue that capital is less liquid in recessions.


Endogenous Liquidity in Asset Markets.”
Smith Breeden Distinguished Paper Award.
Journal of Finance, February 2004, 59 1-30. (Lead Article).
Reprinted in “Liquidity and Crises,” edited by Franklin Allen, Elena Carletti, Jan Pieter Krahnen, and Marcel Tyrell (Oxford University Press, 2011)

The working paper contains additional comparative statics and details.

Explores the link between macroeconomic fundamentals and asset market liquidity driven by adverse selection, and demonstrates the magnifying effects of liquidity on investment and volume.  Emphasizes the link between risk taking and market liquidity.  Explains why exogenous negative shocks alleviate adverse selection, but endogenous shocks from investor risk taking leads to procyclical asset market liquidity.



Older Working Papers:


Develops the stylized facts characterizing CDS markets, along with the positive implications of a model of OTC derivatives markets.  See also our policy commentary on Voxeu.org.


Financing Shortfalls and the Value of Aggregate Liquidity.” (with Adriano Rampini.)  


This paper studies the level and dynamics of the value of aggregate liquidity induced by firms’ financing shortfalls.

Colonies.” (with  Matthias Doepke.)  

We examine the endogenous dynamics of the distribution property rights in a framework in which people with property-rights protection trade off efficiency and exploitation in their decisions to award or limit the property rights of others.  




Capital Reallocation and the Business Cycle:  Data Update to EOY 2013

Updated version of Figure 1 from “Capital Reallocation and Liquidity” (joint with Adriano Rampini, JME 2006)


The correlation of the cyclical component of GDP with the cyclical component of sales of PP&E plus acquisitions over total book assets is 0.68 with a standard error of 0.10.