Research: Working Papers.
My research interests in financial economics are:
-) asset pricing;
-) corporate finance;
-) derivative securities.
On this page you will find abstracts of my working papers. Full text of some of the papers is available for download. For others, please send me an e-mail to request a copy.
"Asset Prices When Investment Opportunities are Changing"
"Time Varying Risk Aversion: Evidence from Russian Lottery Bonds."
Abstract:
This paper provides direct evidence on the risk aversion of participants in a securities market. It uses the prices of lottery bonds issued by the Imperial Russian Government in 1864 and 1866 to estimate the time-variation in investor risk aversion. Time variation in investor risk aversion is then compared to the dynamics of the Russian bond market over the period 1889 to 1904, and increases in risk aversion are positively associated with increases in the price of a risk-free asset. Implications of a Consumption CAPM model for a relationship between changes in interest rates and changes and levels of risk aversion are tested. Evidence supporting the model is found. The paper provides evidence on the role of risk aversion in securities market dynamics.
From the paper:
I find evidence of a positive relationship between changes in risk aversion and changes in prices of risk-free bonds. This result is in accord with economic intuition that higher risk aversion is associated with higher demand for a safe asset and hence higher equilibrium bond prices. I also test implications of a simple one factor Consumption CAPM model with heterogeneous income risk for a relationship between changes in risk free rates and changes in the level of risk aversion. I find evidence supporting the model. In addition, Granger (1969) causality tests indicate that changes in investor risk preferences cause changes in the interest rate. The paper thus provides some evidence on the role of risk aversion in security market dynamics. The intertemporal fluctuation of risk aversion is consistent with behavioral models and empirical evidence suggesting that investor sentiment fluctuates.
"Modeling and Measuring Russian Corporate Governance: The Case of Russian Preferred and Common Shares." (With William N. Goetzmann and Matthew Spiegel).
Full text download.
Abstract:
This paper examines governance explanations for the discount of preferred shares to common shares in the Russian market. Conflicts between shareholder classes may help explain the discount. However, for this to be the sole explanation the estimated models suggest that the magnitude of future adverse shareholder events would have to be very high. Nevertheless, evidence of a common factor potentially related to governance seems evident in the data, implying that corporate control issues may at least be partially responsible for the observed preferred share discount.
From the paper:
This paper explores an odd empirical deviation from the law of one price that might appear -- at first -- to be due to the relatively poor legal protections for minority shareholders in Russia. In order to understand this deviation, the analysis examines models of minority expropriation designed to parameterize this intuition. It finds that assumptions regarding the magnitude and timing of expropriation would have to be so extreme as to be incredible -- even in the context of Russia's rough and ready corporate environment. For those who insist on a pure corporate control explanation, this leaves the conclusion that extreme investor priors about expropriation have very large effects on the valuation of Russian securities.
The empirical analysis focuses on the relative pricing of the common and preferred shares of Russian companies. These securities differ only in their relative proportions in the equity capital structure, and in the type of issues on which they vote. In addition, preferred shares have a novel constraint on dividends that makes it easy to model their relative value to common. Unlike typical U.S. preferred stocks, which have a promised annual cash payment, the dividends of Russian preferred shares are legally bounded below by the dividends to the common. If, as normally assumed in equity valuation, the stream of future dividends represents all the benefits that can accrue to shareholders, then the common and preferred ratio should be reversed - the preferred should always sell for more than the common. In fact, they almost never do. In this paper, we investigate whether this discrepancy may be the result of the potential for expropriation of one class of shareholders by another.
"Warrant Pricing Using Observable Variables."
Abstract:
Classical warrant pricing formula requires knowledge of the variance of the firm value process, and the firm value, an unobservable variable and, itself, a function of the warrant price. This paper develops the first algorithm for pricing warrants using stock prices, an observable variable, and variance of stock returns. The method also computes the estimate of the variance of firm value. The proof of existence for the solution is provided.
Copyright ¿ 1999 - 2002 Andrey D. Ukhov. All Rights Reserved.
Last updated: 8 December 2002