Credit default swaps (CDS) are unfunded, or the synthetic form of credit exposure, while bonds are fully funded, thus the cash form. Borrowing this industry jargon, credit valuation adjustment (CVA) would be seen synthetic, because it is defined as the present value of buying a default...

To shed light on the formation, expansion, and deflation of bubbles, we study how the cross section of stocks evolves during the 2015 Chinese stock market bubble. Using data on administrative account-level stock holdings covering a representative sample of 18 million retail investors and all...

This study investigates the role of earnings and cash flows in equity valuation under severe uncertainty about firm fundamentals. We hypothesize that the valuation weight on cash flows (earnings) increases (decreases) with the degree of fundamental uncertainty because earnings, which include...

This paper develops a novel theory of accounting, in the form of a quantitative language, capable of reformulating, generalizing, and studying the discounted cash flow model, in plain accounting terms - going through the reformulation of the underlying future cash flows and their financing. This...

In this short working paper I show a possible way of considering excess cash in firm valuation, using a simplified numerical example. Existing various theories about the "right" way to discount the debt's tax shield, I adopt Harris & Pringle theory which discounts the tax savings at the...

Valuation multipliers are frequently used in practice. By postulating a simple stochastic process for the firm's cash flows in which the drift and the variance of the process depend on the investment policy, we develop a stylized model that links the cash flow multiplier to the optimal...

The tax shield as present value of debt-related tax savings plays an important role in firm valuation. Driving the risk of future debt levels, the firm’s strategy to adjust the absolute debt level to future changes of the firm value, labeled as (re-) financing policy, affects the value of tax...

We study investors' perceptions of inflation through the lens of a high-frequency event study and document that they have a stagflationary view of the world. In response to higher-than-expected inflation, investors expect firms' nominal cash flows to remain stagnant while discount rates...