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Research Highlights

Top left: Log cumulative returns of investment strategies based on leverage change and level. Top right: Annualized 12-month rolling standard deviation. Bottom: 5-year rolling window Sharpe ratio. The strategies go long on the bottom quintile of firms with the lowest leverage change and short on those at the highest quintile. High (low) leverage level are firms at the top (bottom) leverage quartile. Stocks with prices lower than $5 or that cumulatively comprise the bottom 10% of market capitalization are excluded. Only firms at the top tercile of intangible capital-to-assets (IK/A) are used. See Mauad and Vallocci (2024) for details.

Intangible capital includes assets that are hard to quantify, like patents, intellectual property, brand recognition, organizational systems, and the expertise of highly skilled employees. The provided graphs illustrate the variable impact of interest rate fluctuations on firms' capital spending based on their level of intangible capital. The key factor at play is that companies rich in intangible assets tend to rely less on debt financing. This is because such assets, despite their value, often do not serve as strong collateral for loans. Therefore, firms with a high level of intangible capital are less affected by changes in interest rates, as their financing strategies do not heavily depend on borrowing. See Mauad (2024) for details.

Exchange rate investment strategies

Exchange rate returns using three proposed strategies: ATM, left tail, and right tail, compared to benchmark strategies carry trade, risk reversal, and volatility risk premium (VRP). See Ornelas and Mauad (2019) for details.