Date of Award

Spring 2021

Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Gorton, Gary


This dissertation consists of three essays on the topics of asset pricing, financial intermediation, and macrofinance. The first essay shows the role of government risk in asset prices. Firms that depend on the government—either through implicit guarantees or direct sales—face a special risk: government risk. I show that this risk is priced and is not spanned by other factors. I study four cases: U.S. banks, U.S. auto companies, U.S. government suppliers, and Japanese zombie firms. The U.S. cases involve direct exposure to government risk, and a U.S. government risk factor prices portfolios formed from government-dependent firms. Japanese zombies rely on the government's constraints through the intermediary sector, and covariance with government risk drives the intermediary asset pricing result in an environment of loan forbearance. In the second essay, I show that the effects of regulatory forbearance in Japan confound asset pricing premiums. Japanese zombie firms—companies that receive subsidized credit from banks—arise from regulatory forbearance, and they affect Japanese value and momentum premiums. Controlling for zombies revives the momentum effect in Japan, widely known to be "too low." Zombie-adjusted momentum doubles the unadjusted momentum Sharpe ratio, commands a positive price of risk, and is unspanned by other factors. Value, too, looks more in line with international results. The low momentum effect arises in Japan because of zombies' relationship with their bank lenders. Syndicated loan lending relationships indicate that firms with forbearance-inclined lenders drive low momentum, and zombie losers' high bank beta leads to low momentum returns in strong bank return months. The third essay, coauthored with Chase P. Ross and Landon J. Ross, studies the effect of firm cash holdings on equity returns. U.S. companies hold cash on their balance sheets, and the share of assets held in cash varies across companies and over time. A firm's cash holdings is an implicit holding in a low-return asset, which pushes down a firm's equity return, and investors should thus hedge out the cash on the balance sheets when calculating equity returns. We show that neglecting to consider cash holdings results in biases in portfolio optimization, factor creation, and cross-sectional asset pricing. We decompose common stock market betas into components, which depend on the portfolio's cash holding, the return on cash, and the portfolio's cash-hedged equity return.