Corporate Asset Pricing
62 Pages Posted: 14 Apr 2021
Date Written: March 30, 2021
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: Suggested Citation