Equity valuation without DCF (with Christopher Polk & Thummim Cho

We introduce discounted alphas, a novel framework for equity valuation. Our approach circumvents the need for stock-level cost-of-equity estimates required in discounted cash flow (DCF) valuation and identifies economically important variation in fundamental value not captured by best-in-class DCF methods. We find that discretionary buy-and-hold funds tilt toward characteristics that predict underpricing but not short-term alphas and that private equity funds appear to capture substantial CAPM misvaluation, both initially at buyout and subsequently at exit. However, despite these pockets of misvaluation, we find that firm equity values are "almost efficient"' by Black's (1986) definition.

Project 2 title: Bye Bye Beta: Deposit Duration with fixed spreads

Summary: I construct a novel, time-varying measure of bank interest rate risk and show that it varies dramatically with the level of rates. In contrast to the conventional ``deposit beta'' model, which assumes a proportional relationship between deposit rates and risk-free rates, I document that long-term deposit rates follow a fixed spread below risk-free rates when rates are high, but become floored at zero when rates are low. Banks thus benefit from rate increases when rates are very low (as deposit spreads widen), but are harmed when rates are high (as fixed-rate assets lose value). A measure of bank interest rate risk constructed on this basis accurately predicts bank stock price responses to interest rate shocks with high statistical significance, while alternative duration measures in the literature predict effects with the wrong sign. These findings have important implications for monetary policy transmission and financial stability risk assessment, and help explain why banks increased holdings of long-duration securities during the low-rate period --- as a natural hedge against their deposit franchise exposure.

Project 3 title: Expected interest rates

Summary: What is the expected interest rate in a month, a quarter, and a year? Term premium models attempt provide an answer, but require strong assumptions and do not perform well out of sample. I propose a new approach that measures the term premium directly from swaptions data with a minimal set of assumptions. My measure outperforms existing approaches out of sample and generates substantial potential returns to a market timing portfolio.