Kane Kyuho Bae

Working Papers

Intermediate Input, Operating Profit and Risk (Job Market Paper)

Abstract: Intermediate input price cyclicality, the extent to which an industry's input price comove with economic conditions, is a key determinant of cash flow cyclicality and risk. Empirically, firms with cyclical input price have smoother operating profits and lower exposure to market risk. A value-weighted  low-minus-high  portfolio sorted by the cyclicality generates a 5.5%  annualized return. A model with production network, Calvo pricing, and oligopoly can explain the empirical findings with cost pass-through and operating hedging channel. Using tariff changes as plausibly exogenous cost shock, I confirm predictions of the model: pass-through to output prices is concentrated when upstream suppliers are price-flexible and have low market power, and network-propagated input price increases depress downstream operating profits only in sticky price industries.

• 2024 FMA, 2025 EFA, 2025 NFA, 2025 University of Toronto

• 2024 FMA Semifinalist for best awards

Inventory Management and the Cross-Section of Asset Returns (with Alexandre Corhay and Jincheng Tong)

Abstract: We study how firms’ inventory policies shape their exposure to aggregate demand and supply shocks. In a production-based asset pricing model with inventory management, we show that the shadow value of inventories reflects two opposing forces: a cost-smoothing channel that hedges adverse supply shocks by allowing firms to sell from inventory when marginal costs rise, and a stock-out option value that amplifies exposure to demand shocks as inventories become less valuable in low-demand states. This duality implies that inventories can act as either a hedge or a source of risk, depending on the shock. Empirically, firms with higher inventories load positively on demand shocks and negatively on supply shocks, and the resulting inventory premium varies with the prices of these risks. Inventories thus play a central role in transmitting fundamental macroeconomic shocks into asset prices.

• 2026 SAIF Annual Research Conference, 2026 CICF, Bank of Canada

Inventories, Inflation, and the Term Premium (with Alexandre Corhay, Jincheng Tong, and Yuan Wang)
New Draft  Available Soon

Abstract: We show that inventories are a key state variable for monetary policy transmission and the pricing of inflation risk. In a New Keynesian macro-finance model with inventories, accommodative policy generates little inflation when stocks are ample, as firms meet demand without raising marginal costs. When inventories are scarce, the same shock yields a sharply stronger inflation response as firms ration demand or rely on costly production. Using local projections, we document that monetary policy shocks are substantially more inflationary in low-inventory environments. This state dependence alters the real–nominal covariance and the pricing of inflation risk. Inventory conditions forecast bond risk premia and the inflation risk premium, offering a new mechanism linking inventories, inflation, and term premia.