Since firms time the stock market through equity net issuance, the direction of net issuance reveals the firm's net present value calculation and an asset pricing model of risk most likely to be used in the calculation. We take this insight to develop a test that infers an asset pricing model...

We propose a loglinear present-value identity in which investment ("scale"), profitability ("yield"), and discount rates determine a firm's market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical...

This paper relates valuation ratios to future markups in a present-value framework for total firm assets. Expected future cash flows explain the majority of the cross-sectional variance of firms’ asset market-to-book ratio, while asset discount rates only account for a relatively small...

We propose a novel way to study asset prices based on price distortions rather than abnormal returns. We derive the correct identity linking current mispricing to subsequent returns, generating a price-level analogue to the fundamental asset pricing equation used to study returns. Our GMM test...

This paper tests the idea that financial intermediaries who act as arbitrageurs in the asset market help determine the equilibrium risk of financial assets. They do this by turning “alphas” into “betas”; assets with large abnormal returns attract more arbitrage and covary correspondingly...