Research:
Here is some of my current research. Feel free to send me an email (fbelo _at_ umn.edu) for a pdf copy of any of the current working papers. Comments are always welcome!
Working Papers:
"A Pure Production-Based Asset Pricing Model", (This version: July 2008) This paper is based on my PhD dissertation at the University of Chicago (Thesis advisors: John Cochrane (chair), John Heaton, Monika Piazzesi and Pietro Veronesi)
This paper explores
the implications of the producers' first order conditions for asset pricing and
provides an explanation of the cross-sectional variation in average stock
returns. Theoretically, I derive a stochastic discount factor for asset returns
from the equilibrium marginal rate of transformation, the rate at which a
producer can transform output in one state of nature into output in another
state. I propose a procedure to measure the marginal rate of transformation in
the data and I show that the inferred marginal rate of transformation implies a
novel macro-factor asset pricing model in which the pricing factors are a
function of industry output and prices growth. Empirically, the model captures
well the risk and return trade-off of several portfolio sorts, including the 25
Fama-French portfolios sorted on size and book-to-market. The returns on small
stocks and value stocks have a large negative covariance with the marginal rate
of transformation, which explains their high average returns relative to big
stocks and growth stocks. The estimated preducers' elasticity of substitution
of output across states of nature is high, a result that is in contrast with
the assumption of a zero elasticity that is implicitly made in current
empirical and theoretical representations of the technology of a firm that
operates in an uncertain environment.
"Labor
Hiring, Investment and Stock Return Predictability in the Cross Section" (with Santiago Bazdrech and Xiaoji Lin)
We document that
the firm level hiring rate predicts stock returns in the cross-section of US
publicly traded firms even after controlling for investment, size,
book-to-market, momentum, net stock issues, accruals, asset growth and
profitability. The predictability shows up in all size groups (micro caps,
small and large firms) and in both Fama-MacBeth cross sectional regressions and
in portfolio sorts. We propose a production-based asset pricing model with
adjustment costs in labor and capital that explains the main empirical
findings. We derive a novel stock return decomposition that expresses the
firms' stock return in terms of firms' characteristics, in particular the
firms' investment and hiring rates. The model implies that investment and
hiring rates predict stock returns because these variables are proxies for the
firms' time-varying conditional betas. The model also implies that hiring
(investment) is more informative about future returns for labor intensive
(capital intensive) firms which we verify in the US data.
Work in Progress:
"An Argument
for Poor International Risk Sharing" (with Bob Goldstein,
Jianfeng Yu)
TBA
"A Joint
Estimation of Conditional Structural Models and Factor Models" (with Jeremy Graveline, Bob Goldstein
and Fan Yang)
TBA
"Government Size and Asset Prices" (with Antonio Mele)
TBA