Working Papers

Rethinking Asset Pricing with Quantile Factor Models (with Xenxo Vidal and Montserrat Guillén) IREA-University of Barcelona, 2021

comments are welcome!

Traditional empirical asset pricing focuses on the average cases. We propose a new approach to analyze the cross-section of the returns. We test the predictive power of market-beta, size, book-to-market ratio, profitability, investment, momentum, and liquidity, across the whole conditional distribution of market returns.  We show that the practice of adding characteristics to our pricing equation should be clearly informed by our particular interests regarding the cross-sectional distribution of the returns, that is, whether we are more interested in a certain fragment of the distribution than in other parts. Our results emphasize the need to consider carefully what factors to include in the pricing equation, which depends on the dynamics that one wants to understand and even on one attitude towards risk. In short, not all factors serve all purposes.

Vulnerable Funding in the Global Economy(with Helena Chuliá and Ignacio Garrón). IREA-University of Barcelona, 2021

comments are welcome!

We study the international propagation of financial conditions from the United States to global financial markets. The impact is highly heterogeneous alongside the quantiles of the distribution of the two major funding sources, credit and equity. Analogous to vulnerable growth episodes, there exist vulnerable funding periods of a global scale, originated from financial weakness in the US. Our estimates differentiate between first and second moment (i.e. uncertainty) shocks to financial conditions. This distinction proves to be relevant as it uncovers a complex propagation of shocks via different economic channels. We also document a heterogeneous impact across countries. In the case of credit growth this heterogeneity is better explained by the size or depth of the markets, while in the case of stock markets, the explanation is rooted in the strength of the financial connectedness with the US.

Interdependent Capital Structure Choices and the Macroeconomy(with Jose E. Gómez and Jorge Hirs). IREA-University of Barcelona, 07-2021, Colombian Economists’ Network. 2021

comments are welcome!

This study shows that capital structure choices of US corporations are interdependent across time. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions.

Global Effects of US Uncertainty: Real and Financial Shocks on Real and Financial Markets(with Jose E. Gómez and Jorge Hirs) IREA-University of Barcelona, 2020


We estimate the effects of financial, macroeconomic and policy uncertainty from the United States on the dynamics of credit growth, stock prices, economic activity, bond yields and inflation in five of the main receptors of US foreign direct investment from 1950 to 2019: The United Kingdom, The Netherlands, Ireland, Canada and Switzerland. Our results point out to financial uncertainty as the main driver (even more than real uncertainty or the US interest rate) of global economic cycles. We show that increases of US financial uncertainty deteriorate economic activity on a global scale, especially by reducing credit and stock prices, and therefore funding opportunities for firms and households (heterogeneously on a country level basis). Our results emphasize the importance of financial markets, and especially financial uncertainty in the United States, as the main origin of global economic fluctuations, which can be said to describe the recent history of the global economy. They also cast doubts on the ability of uncertainty indicators based on the counting of key words in the media as a barometer of traditional economic uncertainty.