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Working Paper
Disruptions to Foreign Trade and U.S. Banks’ Returns
We develop a market-based measure of firms' and industries' exposure to foreign trade disruptions. Combining this approach with detailed supervisory data, we quantify large U.S. banks' exposure to such disruptions and propose a novel bank-level vulnerability index. We show that banks with greater exposure experienced significantly larger stock price declines following the April 2025 tariff announcements. Our vulnerability index explains 18% of the cross-sectional variation in bank returns during this episode.
Working Paper
Equity Financing Risk
A risk factor linked to aggregate equity issuance conditions explains the empirical performance of investment factors based on the asset growth anomaly of Cooper, Gulen, and Schill (2008). This new risk factor, dubbed equity financing risk (EFR) factor, subsumes investment factors in leading linear factor models. Most importantly, when substituted for investment factors, the EFR factor improves the overall pricing performance of linear factor models, delivering a significant reduction in absolute pricing errors and their associated t-statistics for several anomalies, including the ones ...
Working Paper
“Good” Inflation, “Bad” Inflation: Implications for Risky Asset Prices
Using inflation swap prices, we study how changes in expected inflation affect firm-level credit spreads and equity returns, and uncover evidence of a time-varying inflation sensitivity. In times of “good inflation,” when inflation news is perceived by investors to be more positively correlated with real economic growth, movements in expected inflation substantially reduce corporate credit spreads and raise equity valuations. Meanwhile in times of “bad inflation,” these effects are attenuated and the opposite can take place. These dynamics naturally arise in an equilibrium asset ...
Working Paper
Decoding Equity Market Reactions to Macroeconomic News
The equity market’s reaction to macroeconomic news is consistent with the propagation of news into the real economy. We embody all the macro news in an activity news index and a price news index that together explain 34% of the quarterly stock price returns variation. When those indexes capture a stream of favorable macroeconomic surprises, publicly traded firms experience increases in revenues, profitability, financing, and investment activities. The firm-level resultslead up to an expansion of the real side of the whole U.S. economy. Our findings, taken together, show that stock prices’ ...
Discussion Paper
Spike in 2019Q1 Leverage Ratios: The Impact of Operating Leases
In this note, we show that the key driver of the 2019:Q1 increase in the leverage ratio appears to be a change in accounting rules – which requires the inclusion of operating leases as financial liabilities on U.S. corporations' balance sheets – and also provide a methodology for adjusting the leverage ratio to allow for cleaner historical comparisons.
Discussion Paper
Macroeconomic News and Stock Prices Over the FOMC Cycle
We develop novel macroeconomic surprise indices to identify the impact of macroeconomic releases on aggregate stock market returns over the FOMC cycle. We find that the aggregate stock prices are positively correlated with our real economic activity news index and negatively correlated with our price news index.
Discussion Paper
The post-COVID stock listing boom
In the aftermath of the Covid-19 pandemic, the U.S. equity markets have witnessed a surge in the number of publicly listed companies. Using data for the three major U.S. stock exchanges (AMEX, NYSE, and NASDAQ), we find that the number of publicly traded companies went from 4,144 at the end of August 2020 to 5,301 at the end of December 2021, a staggering increase of about 28 percent.
Discussion Paper
Corporate Profits in the aftermath of COVID-19
This note documents the behavior of corporate profit margins during and in the aftermath of the pandemic. As the traditional measure of corporate profit margin is heavily affected by fiscal support and its withdrawal, it also proposes an alternative measure.