PhD Candidate in Finance (Expected 2014)
Kellogg School of Management
Address: 2001 Sheridan Road, Department of Finance, Evanston, IL 60208
International Instability and Asset Pricing (with Andrea Lu and Zhuqing Yang), May 2013 (Local download).
We exploit a unique dataset of country-specific military expenditure and construct a proxy for the international instability, measured as the growth rate of global military expenditure to GDP ratio, to capture the political tension and international conflicts. We study the asset pricing implications in 49 global stock markets and find the international political instability is a valid source of systematic risk. Our proxy helps explain the cross-sectional return differences across countries, complementary to the existing global asset pricing models. In addition, emerging countries have higher exposure to international political instability risk than developed countries. Such higher exposure contributes to the higher returns observed in emerging countries relative to developed countries.
Seeing the Unobservable from the Invisible: the Role of CO2 in Measuring Consumption Risk in U.S. and International Markets (with Andrea Lu), May 2013 (Local download).
We use growth in carbon dioxide emissions as a measure of consumption risk within a standard consumption-based capital asset pricing model (CCAPM) framework. Given its comprehensive worldwide coverage, this allows us to use the full history of international stock market data. For the United States (Europe), we are able to explain the observed equity premium with a relative risk aversion of 5 (4) and an implied risk-free rate of 3% (6%). Similar results are obtained for the other G20 countries. Finally, we show that growth of CO2 emissions is a priced risk factor that captures cross-sectional return variation for both U.S. and international markets.
Prof. Ravi Jagannathan