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", (currently
being revised; This version: June 2007) This
paper is based on my PhD dissertation at the
This paper explores the
implications of the producers’ first order conditions for asset pricing and
provides an explanation of the cross-sectional variation in expected stock
returns. I recover 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.
Empirically, I show that the marginal rate of transformation 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.
Work in Progress:
"Government Size and Asset Prices" (in progress) (with Antonio Mele)
TBA
"A Proposed Resolution for
the International Risk Sharing Puzzle: A Case for Heterogeneous Beliefs" (with Bob Goldstein,
Pedram Nezafat)
TBA
"A Joint Estimation of
Conditional Structural Models and Factor Models" (with Jeremy Graveline, Bob Goldstein
and Fan Yang)
TBA
"Labor Hiring, Investment and Stock
Returns"
(with Santiago Bazdrech
and Xiaoji Lin)
TBA
Old or Abandoned Work:
"Implications of the Consumption-Leisure Tradeoff for Asset Pricing" (Some notes from August 2005)
I explore the implications of the tradeoff between consumption and leisure for asset pricing. I show that the optimal tradeoff can be used to identify unobserved components of the utility function such as the habit level or preference shocks and I examine if this additional information inferred from the data, improves the ability of the consumption-based asset pricing model in explaining standard asset pricing as well as business cycle facts. I study an economy with complete markets and a representative agent and an economy with incomplete markets and heterogeneous agents.
"Exploring the Role of Variety in Consumption-Based Asset Pricing and Real Business Cycle Models" (Some notes from April 2005)
I solve a model with a growing and stochastic number of Lucas "trees" in which the representative agent has a taste for variety. The fruit from each "tree" is perceived as a different good thus introducing a novel source of risk ("variety effect") since agents care not only about the dividends from each tree but also about the stochastic evolution of the number of trees in the economy.
"Tradable and Nontradable Goods and the Cross Section of Expected Returns" (Current version: June 2004) (joint with Sebastian Cerda and Daniel Santos)
This paper builds an equilibrium asset pricing model in which agents derive utility from the consumption of tradable and nontradable goods. We use a generalized constant elasticity of substitution utility function and allow preferences to be non-homothetic. This specification introduces a composition risk since agents care not only about the level of consumption but also with the composition of the consumption basket. We find that income effects are important to explain the observed time series of relative consumption of tradables and nontradables goods but have no first order effects on the pricing kernel of the model. Empirically, we show that the model can explain cross sectional variation in the returns of the Fama-French 25 portfolios sorted on size and book-to-market and the Fama-French 36 international portfolios.
"Estimation of Production and Adjustment Cost Functions Using Stock Market Data" (Some notes from April 2005)
Complete markets and linearly homogenous production and adjustment cost functions (average q equals marginal q) imply that the investment return on physical capital is equal to the market return on a claim to the firms capital stock, state by state. I explore this prediction to estimate and test different forms of production and adjustment cost functions.
"Productivity Shocks, Demand Shocks and Competition" (May 2004)
This paper explores a new representation of production under uncertainty where productivity shocks are endogenous and can be chosen by firms' in a state contingent way. I use this technology in stochastic versions of the textbook Monopoly and Cournot models and study how the choice of the productivity shocks is influenced by competition and by demand shocks. I conclude that if demand has the CES form, the choice of the productivity shocks in each firm is independent of the number of firms in the economy and of the degree of competition. In addition, with no demand shocks I show that firms always choose a nonstochastic productivity shock.
"The effect of securities transaction taxes on welfare and market efficiency” (December 2003)
The impact of securities transaction taxes on the welfare and on the efficiency of financial markets is an important question that has been left relatively unexplored in the context of models with asymmetric information. I analyze these effects in a model with rational expectations, similar in spirit to Kyle (1985), but with (i) rational uninformed agents that trade for hedging reasons and make inferences from the stock price and order flow (ii) strategic behavior of informed agents that trade to exploit not only their informational advantage but also due to hedging reasons (iii) a corporate sector that uses the asset market to extract information about the expected profitability of its investments. Possible extensions include endogenous information and explore the substitution effect caused by tax avoiding trading strategies.
“Some facts about the cyclical convergence in the euro zone”, Banco de Portugal, Working-Paper 7-01, 2001 and Economic Bulletin, Vol 7, Nº4, 2001. The article version can be found here.
In the context of a single currency and a common monetary policy defined by the European Central Bank for the euro area as a whole, it is important to evaluate the degree of business cycle resemblance among the participant countries. I analyze cyclical convergence by studying the degree of association and synchronization of the business cycle among euro area members. Using a time domain approach, I use several parametric and non-parametric statistics to investigate whether the cycles of these countries have converged to the euro area business cycle during the sample period. The results obtained are in line with those from previous studies and suggest that Italy, Spain, Austria, the Netherlands, Portugal and Greece have cyclically converged to the euro area business cycle. Regarding the United Kingdom, the evidence suggests the existence of a strong degree of association with the euro zone, exhibiting however a lead cycle in the more recent period.
“The Portuguese Business Cycle between 1910 and 1958” (with Pedro Duarte Neves), Banco de Portugal, Economic Bulletin, Vol 8, Nº1, 2002
This study analyzes the cyclical developments of the Portuguese economy in the 1910-1958 period.
“Predictability of currency crisis: recent developments in the Early Warning Systems literature”, July 2002, (reader: Hyun Shin), LSE, MSc Finance and Economics Dissertation
This study provides a survey of the recent literature on Early Warning Systems of currency crises.