Altan Pazarbaşı

Cash Heterogeneity and the Payout Channel of Monetary Policy 

The Journal of Finance, Forthcoming

Abstract: This paper provides novel empirical evidence that cash-rich firms have higher equity payouts and higher stock prices in response to expansionary monetary policy surprises. Stock prices rise despite weak cash flow, investment, and credit responses to monetary policy. I rationalize the empirical evidence in a heterogeneous firm New Keynesian model where firms finance investment with cash and equity issuance. Monetary easing weakens precautionary cash demand, leading cash-rich firms to optimally allocate excess funds to shareholders. Since payouts are procyclical, cash-rich firms earn higher returns in expansionary periods. My findings highlight a payout channel through which monetary policy impacts asset prices.

Presentations: WSIR 2022, Banque de France, ASSA-IBEFA 2022, 4th LTI Asset Pricing Conference 2022, Day-Ahead Workshop on Financial Regulation 2022, AEFIN Finance Forum 2021, AEFIN Ph.D. Mentoring Day 2021, AFFI 2021. 

Dispersion of Beliefs Bounds: Sentimental Recovery  (with Paul Schneider and Grigory Vilkov)

Management Science, 2024, 70(12), 8284-8300, DOI: https://doi.org/10.1287/mnsc.2022.01587

Abstract: We present a non-parametric method to recover a bound on ex-ante dispersion of beliefs (DBB) from asset prices with minimal assumptions. DBB constrains the dispersion among all possible distributions in an economy, consistent with observed prices and subject to a good-deal bound. In model-based economies, DBB effectively tracks belief heterogeneity and serves as a diagnostic tool for evaluating model calibrations. Empirically, DBB relates to common proxies of belief dispersion, offering a real-time market-implied disagreement measure. Our versatile approach applies to both complete and incomplete markets represented by any asset class.

Working Papers

Public Debt and Private Investment: The Role of Firm Leverage (with Alex Hsu and Andrea Tamoni) 

Abstract: This paper shows that financial heterogeneity matters in firms' investment responses to rising public debt. We provide novel empirical evidence that higher public debt leads to lower investment for low-leveraged firms rather than high-leveraged firms. Low-leverage firms also have significantly lower profitability after government debt rises, while public debt does not predict excess returns across leverage-sorted portfolios.  We rationalize our empirical findings in a heterogeneous firm model in which public debt drives the tax rate, the price of capital, and the discount rate. In the calibrated model, fiscal policy weakens cash flows of low-leverage firms more because they have higher growth opportunities. As they have a larger movement in the marginal benefit curve relative to marginal costs, low-leveraged firms are more responsive to rising public debt. Our results underline that heterogeneous investment responses are shaped by a cash flow channel of fiscal policy distinct from the standard discount rate mechanism.  

Presentations: MFA 2026 (scheduled)

Reaching for Beta  (with Egemen Genc and Emanuel Moench) 

Abstract: Using equity mutual fund holdings and transactions, we show that managers actively tilt toward high-beta stocks when monetary policy is contractionary and short rates rise. This “reaching for beta” is persistent, elevates sector-wide net buying of high-beta stocks, and attracts fund inflows under tighter policy. It raises funds' raw but not risk-adjusted returns and induces temporary stock-level price pressure that subsequently reverts. We show that reaching for beta is consistent with fund managers counteracting investor outflows by boosting expected returns. Unlike reaching for yield in bonds, tighter policy increases risk-taking in equities, revealing a beta channel of monetary policy transmission. 

Presentations: Lapland Investment Fund Summit  2025, ASSA-IBEFA 2026 (scheduled),  5th Spring Finance Workshop 2026 (scheduled)

Credit Beta

2021 European Investment Forum Research Prize Finalist

Abstract: I propose a new daily measure of time-varying systematic credit risk that is directly estimable from the cross-section of CDS returns. I find that exposure to systematic credit risk, i.e. credit beta, has a strong relation with expected stock returns, while it is distinct from exposures to other equity, bond, and derivatives market risks. Consistent with theory, credit beta subsumes the abnormal returns of stocks with higher firm-level measures of observable default proxies such as credit risk premium and the distance-to-default. Credit betas also predict cash flows of high default risk firms, emphasizing a strong role of cash flow dynamics in a risk-based view of abnormal returns. The paper lends credence to the conjecture that the pricing in credit markets matters for investors on the equity risk premium they demand.