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Hi, I'm Xinyu Liu, a PhD candidate in Finance at INSEAD.
Work in Progress
Abstract: Priceless consumption (PC) is a type of consumption that is not available in the marketplace and, therefore, is absent from aggregate consumption measures. We propose an estimation methodology to recover PC from its effects on the composition of observable consumption. The estimation shows that PC is economically significant: It is highly volatile and has become increasingly scarce and valuable over the past decades. As an application, we show that using the recovered true aggregate consumption series, which includes PC, significantly improves the fit of the standard consumption-CAPM with power-utility.
Abstract: In this paper, I show labor hiring friction matters for stock return, and is a necessary condition for the negative hiring-return relation. To proxy for labor hiring friction, I construct a firm-year level measure of labor shortage using textual analysis of firms' SEC fillings. Via portfolio sorting and predictive regression, I show that labor shortage predicts low stock returns, and the negative relationship between firm's hiring rate and its future return is only significant for firms who discuss labor shortage in their filings. These patterns are consistent with predictions from a neoclassical human capital investment framework, in the presence of hiring adjustment cost. In addition, I document relations between labor shortage and firms' policy and operation dynamics. Firms of high growth are more likely to discuss labor shortage. Once they do, their current hiring and future investment rate drop, leverage and book to market ratio increase. Finally, in the robustness tests, I show that these findings cannot be explained by biases such as small firm bias, and are robust to alternative interpretations of labor shortage measure.
Abstract: This paper explores the impact of supply shocks on investment dynamics and Q. Without shocks to investment costs, fluctuations in demand for investment dictate equilibrium investment and Q along a predictable path. However, when investment costs vary significantly, the relationship between investment and Q becomes more complex. Analogous to price and quantity in demand-supply systems, Q influences investment behavior. This paper demonstrates that in a dynamic investment model, demand shocks lead to positive investment-Q correlations under certain conditions, while supply shocks result in negative correlations when investment is less responsive to supply fluctuations. The elasticity of investment to shocks depends on their persistence. Numerical simulations reveal that the correlation between investment and Q is influenced by the volatility and persistence of supply shocks. Even moderate supply shock volatility can yield low or negative investment-Q correlations.
