Research
Job market paper
Market Concentration, Capital Misallocation, and Asset Pricing
Best PhD Paper Award at the 7th Asset Pricing Conference by LTI@UniTo
Abstract:
Superstar firms, which dominate markets through large size and high markups, can deter efficiency in capital allocation across firms. This paper empirically studies the asset pricing implications of superstar firms through the channel of capital misallocation, measured by the cross-sectional dispersion in the marginal product of capital (MPK). I decompose this measure into misallocation (1) among superstars, (2) among other firms, and (3) between these two groups. Shocks to the third component, termed the "MPK spread", are negatively priced in the cross-section of stock returns. Stocks negatively exposed to these shocks outperform stocks with positive exposure by 4.8% per year. In the long run, a higher MPK spread predicts lower economic growth and aggregate stock returns, while in the short run, it predicts lower innovation growth. Consistent with the ICAPM framework, capital misallocation between superstar and non-superstar firms is a key state variable, and its shocks capture a macroeconomic risk factor.
Work in progress
Intermediary Asset Pricing Through the Lens of a Demand System
with Dongryeol Lee (UCLA)
Overlapping Factors