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¡¾Speaker¡¿ZHANG Lu, Professor of Finance,University of Michigan

¡¾Topic¡¿The Cross-Section of Stock Valuation Ratios

¡¾Time¡¿13:30-15:00, 2010-06-10, Thursday

¡¾Venue¡¿Room 409, Weilun Building, Tsinghua SEM

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¡¾Organizer¡¿Department of Finance, Department of Economics, Department of Accounting

Abstract

The curvature in capital adjustment is important for the empirical performance of q-theory in explaining cross-sectional asset prices. We use q-theory with curvature to explain expected stock returns and stock return variances as well as stock valuation ratios and valuation ratio variances.The estimates suggest that capital adjustment in the data displays more curvature than the standard quadratic adjustment costs. Curvature improves the model¡¯s performance, especially in explaining return variances and valuation variances. Also, the adjustment costs estimated with curvature are substantially lower than those estimated with the standard quadratic form.