Essays in equilibrium asset pricing

Introduction This dissertation consists of three essays in equilibrium asset pricing. The first chapter studies the asset pricing implications of a general equilibrium model in which real investment is reversible at a cost. Firms face higher costs in contracting than in expanding their capital stock and decide to invest when their productive capital is scarce relative to the overall capital of the economy. Positive shocks to the capital of the firm increase the size of the firm and reduce the value of growth options. As a result, the firm is burdened with more unproductive capital and its value lowers with respect to the accumulated capital. The optimal consumption policy alters the optimal allocation of resources and affects firm's value, generating mean-reverting dynamics for the M/B ratios. The model (1) captures convergence of price-to-book ratios -negative for growth stocks and positive for value stocks - (firm migration), (2) generates deviations from the classic CAPM in line with the cross-sectional variation in expected stock returns and (3) generates a non-monotone relationship between Tobin's q and conditional volatility consistent with the empirical evidence. The second chapter proposes a standard portfolio-choice problem with transaction costs and mean reversion in expected returns. In the presence of transactions costs, no matter how small, arbitrage activity does not necessarily render equal all riskless rates of return. When two such rates follow stochastic processes, it is not optimal immediately to arbitrage out any discrepancy that arises between them. The reason is that immediate arbitrage would induce a definite expenditure of transactions costs whereas, without arbitrage intervention, there exists some, perhaps sufficient, probability that these two interest rates will come back together without any costs having been incurred. Hence, one can surmise that at equilibrium the financial market will permit the coexistence of two riskless rates that are not equal to each other. For analogous reasons, randomly fluctuating expected rates of return on risky assets will be allowed to differ even after correction for risk, leading to important violations of the Capital Asset Pricing Model. The combination of randomness in expected rates of return and proportional transactions costs is a serious blow to existing frictionless pricing models. Finally, in the last chapter I propose a two-countries two-goods general equilibrium economy with uncertainty about the fundamentals' growth rates to study the joint behavior of equity volatilities and correlation at the business cycle frequency. I assume that dividend growth rates jump from one state to other, while countries' switches are possibly correlated. The model is solved in closed-form and the analytical expressions for stock prices are reported. When calibrated to the empirical data of United States and United Kingdom, the results show that, given the existing degree of synchronization across these business cycles, the model captures quite well the historical patterns of stock return volatilities. Moreover, I can explain the time behavior of the correlation, but exclusively under the assumption of a global business cycle.

Populations with elevated mutation load do not benefit from the operation of sexual selection.

Theory predicts that if most mutations are deleterious to both overall fitness and condition-dependent traits affecting mating success, sexual selection will purge mutation load and increase nonsexual fitness. We explored this possibility with populations of mutagenized Drosophila melanogaster exhibiting elevated levels of deleterious variation and evolving in the presence or absence of male-male competition and female choice. After 60 generations of experimental evolution, monogamous populations exhibited higher total reproductive output than polygamous populations. Parental environment also affected fitness measures - flies that evolved in the presence of sexual conflict showed reduced nonsexual fitness when their parents experienced a polygamous environment, indicating trans-generational effects of male harassment and highlighting the importance of a common garden design. This cost of parental promiscuity was nearly absent in monogamous lines, providing evidence for the evolution of reduced sexual antagonism. There was no overall difference in egg-to-adult viability between selection regimes. If mutation load was reduced by the action of sexual selection in this experiment, the resultant gain in fitness was not sufficient to overcome the costs of sexual antagonism.

Randomized controlled study demonstrating failure of LPV/r monotherapy in HIV: the role of compartment and CD4-nadir.

BACKGROUND: Long-term side-effects and cost of HIV treatment motivate the development of simplified maintenance. Monotherapy with ritonavir-boosted lopinavir (LPV/r-MT) is the most widely studied strategy. However, efficacy of LPV/r-MT in compartments remains to be shown. METHODS: Randomized controlled open-label trial comparing LPV/r-MT with continued treatment for 48 weeks in treated patients with fully suppressed viral load. The primary endpoint was treatment failure in the central nervous system [cerebrospinal fluid (CSF)] and/or genital tract. Treatment failure in blood was defined as two consecutive HIV RNA levels more than 400 copies/ml. RESULTS: The trial was prematurely stopped when six patients on monotherapy (none in continued treatment-arm) demonstrated a viral failure in blood. At study termination, 60 patients were included, 29 randomized to monotherapy and 13 additional patients switched from continued treatment to monotherapy after 48 weeks. All failures occurred in patients with a nadir CD4 cell count below 200/microl and within the first 24 weeks of monotherapy. Among failing patients, all five patients with a lumbar puncture had an elevated HIV RNA load in CSF and four of six had neurological symptoms. Viral load was fully resuppressed in all failing patients after resumption of the original combination therapy. No drug resistant virus was found. The only predictor of failure was low nadir CD4 cell count (P < 0.02). CONCLUSION: Maintenance of HIV therapy with LPV/r alone should not be recommended as a standard strategy; particularly not in patients with a CD4 cell count nadir less than 200/microl. Further studies are warranted to elucidate the role of the central nervous system compartment in monotherapy-failure.

Evidence of energy sparing in Gambian women during pregnancy: a longitudinal study using whole-body calorimetry.

Components of daily energy expenditure were measured serially by whole-body calorimetry in Gambian women before pregnancy and at 6, 12, 18, 24, 30, and 36 wk gestation. Weight gain was (mean +/- SD) 6.8 +/- 2.8 kg, fat deposition was 2.0 +/- 2.5 kg and lean tissue deposition was 5.0 +/- 2.5 kg. Basal metabolic rate (BMR) was depressed during the first 18 wk of gestation, causing total cumulative maintenance costs by week 36 to be 8.4 MJ. Individual responses to pregnancy correlated with changes in body mass (36 wk: delta BMR vs delta weight; r = 0.60, P < 0.01 delta BMR vs delta LBM; r = 0.62, P < 0.01). There was no significant increase in the cost of treadmill exercise (0% slope: F = 0.71, P = 0.64; 5% slope: F = 1.97, P = 0.10), 24-h energy expenditure (F = 0.72, P = 0.64), activity or diet-induced thermogenesis (F = 1.02, P = 0.43), during pregnancy in spite of body weight gain. Total metabolic costs over 36 wk were 144 MJ (fetus 43 MJ, fat deposition 92 MJ, cumulative maintenance costs 8.4 MJ). These were far lower than reported for well-nourished Western populations.