Working Papers Submitted to Journals (w/ and w/o R&Rs):
1. Aretz, Kevin, Hening Liu, and Kevin Schneider, Seasonal Inventory Leverage.
We develop a neoclassical theory of a firm with seasonal output prices and inventory building. Our theory suggests that seasonal firms optimally build up output inventories toward their high-price seasons. Doing so, they create endogenous similar (inverse) seasonality in their sales (seasonal inventory leverage or expected returns). Importantly, higher inventory holding costs reduce optimal inventory building, dampening the endogenous seasonalities. Supporting our theory, our empirical work reveals that seasonal firms build up inventories toward their high-sales seasons. Moreover, high seasonal inventory leverage predicts high stock returns and helps explain the seasonal-sales, same-calendar-month, momentum, and ROE anomalies.
Presented at the 2023 Annual Meeting of the Financial Intermediation Research Society (FIRS) in Vancouver.
First Revise-and-Resubmit at the Journal of Financial & Quantitative Analysis (July 2025) - Working on revision.
Most recent version (September 2024): HERE.
2. Aretz, Kevin, Hassan Ilyas, and Gaurav Kankanhalli, Technological Progress, Managerial Learning, and the Investment-Stock Price Sensitivity.
Motivated by a real-options framework in which managers learn about new technologies from their installed assets and stock prices, we show that firms’ investment-to-stock price sensitivities rise with the time since they last acquired new capacity. Evidence from an investment-tax-credit-based identification strategy suggests that this relation is likely causal. Notably, managers of firms with outdated capital learn more from stock prices when investors are better informed, managers are less informed, and when alternative external information sources are absent. Our evidence sheds light on the nature of information managers extract from stock prices, suggesting that they learn more in high-innovation environments.
Presented at the 2023 Annual Meeting of the American Finance Association in New Orleans.
Submitted to the Review of Finance.
Most recent version (February 2026): HERE.
3. Aretz, Kevin, Murillo Campello, Gaurav Kankanhalli, and Kevin Schneider, Uncertainty Creates Zombie Firms: Implications for Industry Dynamics and Creative Destruction.
We show how the threat of “uncertainty-induced zombification” — creditors’ willingness to keep distressed firms alive when faced with uncertainty — shapes various industry dynamics. Under a real options framework, we demonstrate that healthy firms become reluctant to invest and disinvest in anticipation that uncertainty induces creditors to convert rival defaulting firms into zombies. We validate our theory model using dynamic, product-market-specific estimates of uncertainty-induced zombification together with loan contract-level data. Empirically, higher uncertainty-led rival zombification prompts unlevered firms to reduce their investment, disinvestment, employment, and establishment-level openings and closures. Notably, these policies are modulated by the anticipation of the extent to which distressed rivals will be subsidized by their creditors. These hard-to-reverse decisions depress healthy firms’ long-run sales revenues, profits, and market values. We confirm those dynamics using granular, near-universal data on the asset allocation decisions of global shipping firms. Our findings highlight a novel channel through which uncertainty influences firms’ capital accumulation, performance, and outcomes.
Accepted for presentation at the SFS Cavalcade Conference North America (May 2024) and the Annual Meeting of the European Finance Association in Slovakia (August 2024).
Submitted.
Most recent version (December 2025): HERE.
Working Papers Not Submitted to Journals:
1. Aretz, Kevin and Maria-Teresa Marchica, Does Creditor Protection Matter for Corporate Borrowing? Evidence from the European Insolvency Regulation - *** BRANDNEW ***
We exploit a natural experiment created by the 2002 European Insolvency Regulation (EIR) to identify the causal effect of creditor rights on corporate borrowing. The EIR unexpectedly reassigned the insolvency jurisdiction of many foreign subsidiaries within the European Union from their host country to the country where their parent companies are headquartered, exposing otherwise similar firms operating in the same economic environment to different creditor rights regimes. Using double and triple-difference designs, we show that shifts toward stronger creditor-rights regimes increase firm debt financing, whereas shifts toward weaker reduce that financing. We also show that while several dimensions of creditor protection significantly affect corporate borrowing, they do so asymmetrically. In addition, the effects of creditor rights are amplified in stronger legal enforcement environments. We finally find little evidence that broader cultural or political factors explain our results.
First draft to be released very soon.
2. Aretz, Kevin, Jiayu Jin, and Yifan Li, Estimating and Forecasting Skewness Using Affine Stochastic Volatility Models.
We derive an estimator of the physical skewness of an asset’s discrete return over any time horizon based on the assumption that the asset’s price follows a stochastic process from the affine stochastic volatility (ASV) model class. Conceptually, our estimator improves upon others by (i) focusing on discrete returns; (ii) allowing us to capture compounding and leverage effects; yielding (iii) horizon-consistent (iv) conditional (“forward-looking”) and unconditional (“historical”) estimates; and (v) not requiring ad-hoc conditioning variables. We use a simulation exercise to show our estimator is highly precise even when the true data-generating process partially deviates from that assumed by the estimator. The exercise further suggests that our estimator comfortably beats others advocated in recent studies. Using options data, we finally show that our estimator best captures time-series variations in the risk-neutral conditional skewness of the S&P 500 index.
Most recent version (January 2026): HERE.