Essays on the economic impacts of perceptions of risk, sentiment and acquisitions
Date
2024
DOI
Authors
Version
OA Version
Citation
Abstract
In this dissertation, I present three distinct essays in asset pricing and macroeconomics that can be read independent of each other. In the first chapter, I estimate a factor pricing model from firm disclosures. Using the latest techniques from natural language processing and machine learning, I isolate risk factors of firms from their disclosures. I then decompose these risk factors into those that are shared with other firms and those that are unshared risk factors. This sharing of risk naturally leads to the formation of networks of firms connected by the factors affecting them. From these networks, I build measures of risk at the firm level. I find that these text-based measures of shared risk can be used to price securities in US financial markets and retain significance even in the presence of established factors. In the second chapter (joint with Marialuz Moreno Badia, Kevin Gallagher, Lei Guo, and Derry Wijaya), we adapt state-of-the-art techniques from Natural Language Processing to construct two new media-based Chinese economic sentiment indices from a large corpus of English and Chinese newspapers. We demonstrate that differences in perception matter for economic outcomes. Our sentiment classification models improve the accuracy of lexicon approaches by a factor of two. Consistent with the agenda setting theory in the communications field, we find that news flow from the English to the Chinese media, but the latter tends to be more positive. Moreover, the perception gap between Chinese and English newspapers has widened in recent years. Evidence from a structural VAR suggests that positive sentiment shocks foreshadow increases in China’s policy rates and asset returns, as well as global commodity prices. The impact of shocks to the English-media sentiment on domestic policy variables is magnified by shocks to the Chinese-media sentiment index. No such amplification is found for financial variables and commodity prices. The goal of this chapter is to understand Mergers and acquisitions (M&A) through the lens of investment at the firm-level. Specifically, M&A can be considered a form of organizational capital built through intangible investments. To demonstrate the nature of this form of investment, I show that acquisitions have the following characteristics: (a) have a strong positive relationship with firm sales; (b) are procyclical at the macro level; (c) are lumpy. Building upon a standard general equilibrium model of firm investment, I structurally estimate the model from micro-foundations. I then develop economic insights for the role of acquisitions in the macroeconomy. Reduction of costs associated with acquisitions can increase the value of firms by around 4%.
Description
2024
License
Attribution-NonCommercial-NoDerivatives 4.0 International