Growth to Value : Option Exercise and the Cross Section of Equity Returns

  • Hengjie Ai Dana Kiku
  • Published 2009
We put forward a general equilibrium model to study the link between the cross section of expected returns and book-to-market characteristics. We model two primitive assets: value assets, and growth assets that are options on assets in place. The cost of option exercise, which is endogenously determined in equilibrium, is highly procyclical and acts as a… CONTINUE READING