Essays on Atypicality: A narrative perspective to illuminate how atypical actors can counter the disciplining effect of categories

Using Big Data and Natural Language Processing (NLP) tools, this dissertation investigates the narrative strategies that atypical actors can leverage to deal with the adverse reactions they often elicit. Extensive research shows that atypical actors, those who fail to abide by established contextual standards and norms, are subject to skepticism and face a higher risk of rejection. Indeed, atypical actors combine features and behaviors in unconventional ways, thereby generating confusion in the audience and instilling doubts about their propositions' legitimacy. However, the same atypicality is often cited as the precursor to socio-cultural innovation and a strategic act to expand the capacity for delivering valued goods and services. Contextualizing the conditions under which atypicality is celebrated or punished has been a significant theoretical challenge for scholars interested in reconciling this tension. Nevertheless, prior work has focused on audience side factors or on actor-side characteristics that are only scantily under an actor's control (e.g., status and reputation). This dissertation demonstrates that atypical actors can use strategically crafted narratives to mitigate against the audience’s negative response. In particular, when atypical actors evoke conventional features in their story, they are more likely to overcome the illegitimacy discount usually applied to them. Moreover, narratives become successful navigational devices for atypicality when atypical actors use a more abstract language. This simplifies classification and provides the audience with more flexibility to interpret and understand them.

Essays on asset pricing

The first chapter provides evidence that aggregate Research and Development (R&D) investment drives a persistent component in productivity growth and that this embodies a risk priced in financial markets. In a semi-endogenous growth model, this component is identified by the R&D in excess of equilibrium levels and can be approximated by the Error Correction Term in the cointegration between R&D and Total Factor Productivity. Empirically, the component results being well defined and it satisfies all key theoretical predictions: it exhibits appropriate persistency, it forecasts productivity growth, and it is associated with a cross-sectional risk premium. CAPM is the most foundational model in financial economics, but is known to empirically underestimate expected returns of low-risk assets and overestimate those with high risk. The second chapter studies how risks omission and funding tightness jointly contribute to explaining this anomaly, with the former affecting the definition of assets’ riskiness and the latter affecting how risk is remunerated. Theoretically, the two effects are shown to counteract each other. Empirically, the spread related to binding leverage constraints is found to be significant at 2% yearly. Nonetheless, average returns of portfolios that exploit this anomaly are found to mostly reflect omitted risks, in contrast to their employment in previous literature. The third chapter studies how ‘sustainability’ of assets affect discount rates, which is intrinsically mediated by the risk profile of the assets themselves. This has implications for the assessment of the sustainability-related spread and for hedging changes in the sustainability concern. This mechanism is tested on the ESG-score dimension for US data, with inconclusive evidence regarding the existence of an ESG-related premium in the first place. Also, the risk profile of the long-short ESG portfolio is not likely to impact the sign of its average returns with respect to the sustainability-spread, for the time being.