Corporate Asset Pricing

62 Pages Posted: 14 Apr 2021

Date Written: March 30, 2021

Abstract

Koijen and Yogo (2019, 2020) show that unexplained demand movements are responsible for the majority of asset price changes. This paper helps explain this unexplained demand. Using corporate demand, I provide the first demand-based convenience yield explanation. I show that when managers are exposed to moral hazard, corporate demand will be determined by their idiosyncratic risk. I see in the cross-section that idiosyncratic volatility leads to higher financial asset holdings, higher savings, and has decreased corporate investment by 5% on average annually. In the time series corporate demand predicts 29% of the convenience yield variation. This effect dominates other investor classes such as financial intermediaries. I isolate my demand-based effect from confounders by using exogenous cross-sectional variation from corporate size and industry exposures.

Keywords: Safe Asset Demand, Convenience Yield, Idiosyncratic Volatility, Investment

JEL Classification: G11, G12, G31, G32

Suggested Citation

Brøgger, Andreas Christian Svane, Corporate Asset Pricing (March 30, 2021). Available at SSRN: https://ssrn.com/abstract=3816004 or http://dx.doi.org/10.2139/ssrn.3816004

Andreas Christian Svane Brøgger (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg, Frederiksberg 2000

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