Ella D.S. Patelli
PhD. Student in Finance at HEC Montréal
HEC Montréal, Department of Finance - Office 5.320
3000, ch. de la Côte-Sainte-Catherine
Montréal (Québec), Canada H3T 2A7
Tel: +41 (0) 78 201 26 56
Uncertainty and Equity Valuation: Implications from Learning about Firm Profitability (job market paper)
Presented or scheduled at the Midwest Finance Association (2021), EFMA Annual Meeting - Doctoral Workshop (2019), and at the Bank of Canada Graduate Student Paper Award (2019).
Abstract : This paper explores how uncertainty affects equity valuation. We develop a model in which investors learn about firm profitability based on analysts forecasts. The forecasts are affected by two types of shocks, a systematic and an idiosyncratic shock, that jointly determine stock prices in equilibrium. We show that equity valuation decreases with the systematic component of uncertainty but increases with the idiosyncratic component. We estimate our measures of uncertainty for 2,298 US firms and find that the relative importance of idiosyncratic versus systematic uncertainty can explain why the relation between uncertainty and equity valuation varies strongly across firms.
A Credit-Based Theory of the Currency Risk Premium (working paper), with Pasquale Della Corte and Alexandre Jeanneret
R&R at the Journal of Financial Economics
Presented at the AEA (2021), EFA (2020), AFA (2020), ECB Exchange Rate Workshop (2019), NFA (2019), Vienna Symposium on Foreign Exchange Markets (2019), Risk Management Conference in the University of Singapore (2019), Asset Pricing Workshop in the University of York (2019), QES European Quantitative and Macro Investing Conference (2019), Swiss Society for Financial Market Research (2019), CDI-Conference on Derivatives (2019).
Abstract : This paper extends the work of Kremens and Martin (2019) and uncovers a novel component for exchange rate predictability. Our theory shows that currency returns compensate investors for the expected currency depreciation in the case of a severe but rare credit event. We compute this risk compensation - the credit-implied risk premium (CRP) - by exploiting the price difference between sovereign credit default swaps denominated in different currencies. Using data for 16 Eurozone countries over the period 2010-17, we find that CRP positively forecasts the euro-dollar exchange rate return between one-week and six-month horizon, both in-sample and out-of-sample. We also show that currency trading strategies that exploit the informative content of CRP generate substantial out-of-sample economic value.