Note: all working papers can be downloaded from SSRN.
Giordani, P., Halling, M., Valuation Ratios and Shape Predictability in the Distribution of Stock Returns, May 2019.
Abstract: While a large literature on return predictability has shown a link between valuation levels and expected rates of returns, we document a link between valuation levels and the shape of the distribution of cumulative (for example, over 12 and 24 months) total returns. Return distributions become more asymmetric and negatively skewed when valuation levels are high. In contrast, they are roughly symmetric when valuation levels are low. These results turn out to be very robust to alternative (a) measures of valuation levels, (b) model specifications and (c) equity markets, shed light on how equity prices regress back to their means conditional on valuation levels and have important practical implications for risk measurement and asset management. Our empirical results support theoretical asset pricing models that have asymmetric responses to shocks, such as stochastic bubbles, liquidity spirals or models with time-varying risk aversion.
Halling, M., Ibert, M., Lenz, M., Firm Fundamentals and Realized Factor Betas, August 2017.
Abstract: Firm fundamentals, in particular firm size, help explain variation in factor loadings (betas) for the market, size and value factor. Surprisingly, however, they are dominated in terms of explanatory power by an unobserved time-invariant component. This leads to surprisingly stable factor loadings: stocks with high (low) factor loadings tend to remain as such for over a decade. Our models work best in explaining market betas (r-squares up to 64%) and worst in explaining value betas (r-squares up to 35%). These results are robust to different estimation techniques of factor betas and also hold up when we limit the sample to firms with statistically significant betas.
Cooper, M., Halling, M.,Yang,W., The Persistence of Fee Dispersion among Mutual Funds, January 2018 (under revision for the Review of Finance).
Abstract: Previous work shows large differences in fees for S&P 500 index funds. We expand this work to compare fees across all US equity funds using two methods, regression-based pricing models and holdings-based fund matching, to control for fund heterogeneity. We find economically large, robust, persistent and pervasive fee dispersion in the mutual fund industry. Importantly, fee dispersion exists among the largest funds (top TNA quintile) as well as among institutional funds. Most surprisingly, fee dispersion has noticeably increased over the last twenty years, even as the industry has experienced enormous growth in capital invested and the number of funds. Time-series regressions show that yearly changes in fee dispersion are positively related to market returns and changes in household participation in the fund industry and negatively related to the size of the mutual fund industry.
Media coverage: WSJ expert blog (Dec. 2016), Barrons (Dec. 2016), New York Times (July 2017).
Drobetz, W., Halling, M., Schroeder, H., Corporate Life-Cycle Dynamics of Cash Holdings, March 2015
Abstract: This paper shows that the corporate life-cycle is an important dimension for the dynamics and valuations of cash holdings. Our results indicate that firms’ cash policies are markedly interacted with their strategy choices. While firms in early stages and post-maturity stages hold large amounts of cash, cash ratios decrease when firms move towards maturity. Much of this variation in cash holdings is attributable to a changing demand function for cash over the different life-cycle stages. Trade-off and pecking order motives are of different importance for cash policies dependent on a firm’s life-cycle stage. An additional dollar in cash is highly valuable for introduction and growth firms, while a dollar in cash adds, on average, less than a dollar in market value for firms in later life-cycle stages, most likely due to increasing agency problems. Most of the dynamics in cash holdings are observed at life-cycle transition points rather than during the different life-cycle stages. Finally, the secular trend in cash holdings seems strongly attributable to increases in cash in the introduction and the decline stage.