PhD Students

Current Ph.D. Students

Sergey studies the asset pricing implications of "zombie firms" for healthy firms operating in the same product markets. A zombie firm is a distressed firm which is artificially kept alive by its bank (e.g., through subsidized credit), so that the bank does not need to write off loans to that firm and can speculate on survival. Zombies are well-known to have negative real effects on their healthy competitors. They, for example, tie up existing resources and depress output prices. Using a simple real options model in which healthy and zombie firms engage in Cournot competition, we demonstrate that zombie firms should also raise the financing costs of the healthy firms. Preliminary empirical evidence based on standard asset pricing tests supports our theoretical priors.

Anna works on developing new parametric estimators and forecasts of the skewness of discrete asset returns over long horizons. While a large theoretical literature is interested in skewness, we generally lag behind in estimating it, especially over longer horizons. To wit, existing estimators often (i) do not focus on discrete returns, (ii) do not produce conditional and unconditional forecasts, (iii) fail to take well-known return dependencies (such as the leverage effect) into account, (iv) posit ad-hoc relation between skewness and exogenous variables, and/or (v) do not come up with consistent estimates over different return horizons. In her first chapter, Anna develops a skewness estimator addressing all these concerns by assuming that asset values can be accurately modelled using some affine stochastic process. She then shows how to estimate the parameters of such processes and how to turn them into a skewness estimate. In her second chapter, Anna posits that stock prices can be accurately modelled using the Heston (1993) stochastic volatility process, and then applies her new estimator to the entire cross-section of daily US stock returns starting, to see what new lessons we can learn. 

Anna will be on the job market starting from September/October 2023.

Kevin works on real options asset pricing models. In his first chapter, he comes up with a real options model of a firm exposed to seasonalities in its output demand/price but able to store produced output in inventory at some linear cost. In line with intuition, the model predicts that firms with sufficiently low inventory holding costs build up output inventories toward their high demand season. Doing so, they create similar endogenous seasonality in their sales but inverse seasonality in their operating leverage and expected returns. His empirical work suggests that seasonal variations in the inventory holdings of seasonal firms are indeed negatively priced in stocks, and that they can explain several seasonal as well as allegedly non-seasonal stock anomalies. In his second chapter, Kevin comes up with a real options model of the firm with stochastic output-price volatility. Remarkably, he shows that this model can not only fit the expected returns of value-versus-growth portfolios but also their volatilities.  

Kevin will start a two-year postdoctoral position at Cambridge University in July 2023.

Former Ph.D. Students

Adnan works on the cross-section of option returns. In his first Ph.D. chapter, he studies the difference in expected raw and delta-hedged returns between "equivalent" (i.e., same underlying, strike price, and maturity date) American and European put options. While his theoretical simulations suggest that the raw difference is positive and economically meaningful, the delta-hedged difference is negative, also economically meaningful, but an order of magnitude smaller than the raw difference. Contrasting traded American single-stock puts with equivalent synthetic European puts, he finds strong empirical evidence supporting his theory. In his second chapter, Adnan focuses on the theoretical insight that American puts which are exercised suboptimally late have lower payoffs than their stock-risk-free asset replication portfolio. He then evaluates the extent to which this insight drives the generally negative mean returns of delta-hedged American put returns documented in the literature.

Adnan now works as Lecturer in Finance at University of Liverpool Management School.

Sue works on the cross-section of corporate bond, loan, and option returns. In her first chapter, she tests the Boguth and Kuehn (2012) consumption-based general equilibrium model with states for mean consumption growth and consumption volatility on delta-hedged options and straddles. She finds that the model does an excellent job pricing these assets. In her second chapter, she looks into whether disinvestment options can explain distress anomalies in stock, bond, loan, and asset returns. She first shows that a simple real options model of an equity-and-debt-financed firm with capacity utilization, investment, and disinvestment options can indeed do so. In line with her theoretical evidence, she then establishes that well-known physical-asset disinvestment proxies condition the distress anomaly in the different types of assets.  In post-PhD work, Sue, Kevin (Schneider), and me also investigate whether q-theory models (such as the Goncalves et al. (2020) model) can not only explain the first moments of stock returns, but also those of corporate bonds, corporate loans, and asset returns. 

While Sue started as a postdoctoral researcher at Tsinghua University (in China), she is now a tenure-track assistant professor at the University of Science and Technology Beijing (also China).

Oksana works on empirical corporate finance topics, in particular, risk-shifting. In her first chapter, she shows that creditors only restrict a firm's risk-shifting tendencies if they have correctly identified the firm as distressed. In her second chapter, she reveals that exogenous distress risk shocks lead moderately ("ailing") but not highly distressed firms to skew their operating asset portfolios towards riskier assets. More importantly, she also shows that the shifts toward riskier assets are facilitated through closing down profitable segments with many growth opportunities, boosting the firm's ex-post failure probability and hurting its creditors. Different from other studies in the extant literature, Oksana's evidence thus does not only suggest risk-taking but actually also risk-shifting. 

Oksana started out as Developmental Lecturer in Lancaster, then became Lecturer in Finance in Birmingham, and is now Senior Lecturer in Finance at Cardiff Business School.