Corporate Asset Pricing

63 Pages Posted: 14 Apr 2021 Last revised: 7 Nov 2022

Date Written: March 30, 2021

Abstract

I show the new fact that Idiosyncratic volatility significantly predicts the convenience
yield. This fact poses a puzzle with current safe asset theories. I develop a new theory
that reconciles this puzzle - a theory I label Corporate Asset Pricing (CAP). CAP
explains 29% of future convenience yield variation and is verified in the cross-section
of firm treasury holdings. I show theoretically that when managers are exposed to
moral hazard, corporate demand will be determined by their idiosyncratic risk. I isolate
my demand-based effect from confounders by using exogenous cross-sectional
variation from corporate size and industry exposures. The results provide support
for the importance of corporates as an investor class.

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

JEL Classification: G11, G12, G31, G32

Suggested Citation

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

Andreas Brøgger (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg, Frederiksberg 2000

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