We consider the problem of finding equilibrium asset prices in a financial market in which a portfolio manager (Agent) invests on behalf of an investor (Principal), who compensates the manager with an optimal contract. We extend a model from Buffa, Vayanos and Woolley (2014) by allowing general...

Macroeconomic risks only partially capture the profitability premium, while adding a misvaluation factor based on investor sentiment helps explain a substantial amount of it. The profitability premium mainly exists in firms whose market valuations are inconsistent with their profitability and...

Macroeconomic risks only partially capture the profitability premium, while adding a misvaluation factor based on investor sentiment helps explain a substantial amount of it. The profitability premium mainly exists in firms whose market valuations are inconsistent with their profitability and...

It is well known that the market-to-book equity ratio and total asset growth are negatively associated with future stock returns. Much less known is that the predictabilities are related through the mispricing channel. We show that the growth-value anomaly is governed by ex-ante total asset...

We measure ex-ante expectation errors by identifying sporadic versus persistent total asset growth ex-ante. Corporate profitability of high (low) asset-growth firms remains inferior (superior) after temporary asset expansion (contraction), hence ex-ante expectation errors are high. Corporate...

The present research aims to propose a new approach to defining and measuring assets in terms of the negative effects and net benefits arising from their use and affecting the natural capital. In this regard, we provide a new definition and a reclassification of assets in three categories,...

It is well known that the market-to-book equity ratio and total asset growth are negatively associated with future stock returns. Much less known is that the predictabilities are related through the mispricing channel. We show that the growth-value anomaly is governed by ex-ante total asset...

This paper shows that portfolio constraints have important implications for management compensation and performance evaluation. In particular, in the presence of portfolio constraints, allowing for benchmarking can be bene cial. Benchmark design arises as an alternative effort inducement...

We present the derivation of cost of capital under the assumption of risky tax shields discounted with the cost of levered equity. We show that the formulation is consistent and is derived from basic financial principles. This formulation is valid for finite cash flows and non growing...

Employee stock options (ESOs) are American-style call options that can be terminated early due to employment shock. This paper studies an ESO valuation framework that accounts for job termination risk and jumps in the company stock price. Under general Levy stock price dynamics, we show that a...