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Title: Three papers on asset pricing
Author: Sabtchevsky, Petar Svilenov
ISNI:       0000 0004 7228 9931
Awarding Body: London School of Economics and Political Science (LSE)
Current Institution: London School of Economics and Political Science (University of London)
Date of Award: 2018
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This thesis consists of three papers on asset pricing. In the first paper, I analyse the effects of volatility management (a trading strategy in which risky asset exposure is inversely proportional to the level of volatility) in a general equilibrium heterogeneous agent model. Two distinct types of agents populate the model economy, an unconstrained investor endowed with logarithmic utility over instantaneous consumption and a volatility-managed portfolio. My model goes a long way towards the rationalization of the behaviour of investment vehicles that follow investment management strategies that are isomorphic to the ones implied by the principles of volatility management. Whereas my theoretical approach offers a high degree of tractability, it is subject to some important caveats. Specifically, the model implies unrealistically high leverage for the unconstrained investor. In the second paper, I propose a general equilibrium intermediary asset pricing model featuring a heterogeneous intermediary sector. Two distinct types of intermediaries populate the financial intermediary sector: equity-constrained intermediaries and shadow financial intermediaries. The main theoretical contribution of this paper is threefold. First, I show that over the region of the state space where the intermediation constraint binds, the risk premium on the intermediated risky asset is decreasing in the degree of intermediary sector heterogeneity. Second, intermediary sector heterogeneity allows for rich leverage dynamics within the intermediary sector and at the level of the aggregate intermediary sector. Third, the constrained region shrinks relative to the benchmark model in which the intermediary sector is homogeneous. The third paper (co-authored with Philippe Mueller, Andrea Vedolin, and Paul Whelan), studies variance risk premia (VRP). We document a number of novel stylized facts related to the equity and the Treasury VRP (EVRP and TVRP) and show that (1) the short maturity TVRP predict excess returns on short maturity bonds; (2) long maturity TVRP and the EVRP predict excess returns on long maturity bonds; and (3) whereas the EVRP predicts equity returns for horizons of up to 6 months, the long maturity TVRP contain robust information for equity returns at longer horizons. Finally, we present evidence that expected inflation is a powerful determinant of the dynamics of the EVRP, the TVRP, and their comovement.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
Keywords: HG Finance