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: Surprisingly, firms with low leverage cut investment more than high-leverage firms when government debt rises. Investment responses are shaped by a cash flow channel of fiscal policy distinct from the standard discount rate mechanism. Low-leverage firms have significantly lower profitability after government debt rises, while government debt does not predict excess returns across leverage-sorted portfolios. We propose a heterogeneous firms model in which higher taxation weakens the cash flows of low-leverage firms because they have higher growth opportunities with long-dated cash flows. Rising government debt drives higher tax rates through a fiscal rule, thus generating disinvestment of low-leverage firms. 

Reaching for Beta  (with Egemen Genc and Emanuel Moench) 

Abstract: Using data on equity mutual fund portfolio allocations and transactions, we show that a rise in short-term interest rates via contractionary monetary policy leads fund managers to tilt their portfolios towards stocks with higher market exposure. This Reaching for Beta is persistent and increases the net buying pressure of high-beta stocks. Funds that actively reach for beta experience more inflows when monetary policy is restrictive, while they deliver higher raw returns but no significant alpha after controlling for risk factors. Funds' demand for high beta stocks induces systematic price pressures, which take several months to dissipate. In contrast to reaching for yield, which associates low interest rates with risk-shifting, reaching for beta implies that tighter monetary policy increases risk-taking in the equity market.

Presentations: Lapland Investment Fund Summit  2025, ASSA-IBEFA 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.