Asset Pricing Implications of Firms’ Financing Constraints

Loading...
Thumbnail Image
Penn collection
Finance Papers
Degree type
Discipline
Subject
Econometrics
Finance
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Gomes, Joao F
Yaron, Amir
Zhang, Lu
Contributor
Abstract

We use a production-based asset pricing model to investigate whether financing constraints are quantitatively important for the cross-section of returns. Specifically, we use GMM to explore the stochastic Euler equation imposed on returns by optimal investment. Our methods can identify the impact of financial frictions on the stochastic discount factor with cyclical variations in cost of external funds. We find that financing frictions provide a common factor that improves the pricing of cross-sectional returns. Moreover, the shadow cost of external funds exhibits strong procyclical variation, so that financial frictions are more important in relatively good economic conditions.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2006-01-01
Journal title
Review of Financial Studies
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection