Prof. Priestley's research interests cover the areas of asset pricing, dividend policy, and international financial markets. His research has been published in the Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Journal of Business, Economic Journal, Journal of Financial and Quantitative Analysis, Journal of Empirical Finance, Journal of International Money and Finance, and Economics Letters, amongst others.
Time variation in the discount rate affects investment and employment decisions in a manner consistent with Q-theory predictions. This evidence is uncovered when using cyclical consumption as a proxy for the discount rate. The results, which are consistent across both U.S. and international data, suggest that firms respond rationally to variations in the cost of capital and that the discount rate has a substantial impact on macroeconomic dynamics and hence business cycle fluctuations.
Priestley, Richard; Cooper, Ilan & Mitrache, Andreea (2022)
A Global Macroeconomic Risk Model for Value, Momentum, and Other Asset Classes
Value and momentum returns and combinations of them across both countries and asset classes are explained by their loadings on global macroeconomic risk factors. These loadings describe why value and momentum have positive return premia, although being negatively correlated. The global macroeconomic risk factors also perform well in capturing the returns on other characteristic-based portfolios. The findings identify a global macroeconomic source of the common variation in returns across countries and asset classes.
Atanasov, Victoria; Møller, Stig & Priestley, Richard (2019)
This paper introduces a novel consumption‐based variable, cyclical consumption, and examines its predictive properties for stock returns. Future expected stock returns are high (low) when aggregate consumption falls (rises) relative to its trend and marginal utility from current consumption is high (low). We show that the empirical evidence ties consumption decisions of agents to time variation in returns in a manner consistent with asset pricing models based on external habit formation. The predictive power of cyclical consumption is not confined to bad times and subsumes the predictability of many popular forecasting variables.
Cooper, Ilan & Priestley, Richard (2016)
The expected returns and valuations of private and public firms
Characteristics play a similar role in describing returns in private rms as in public rms. This evidence suggests a causal e¤ect of optimal investment underlying the role of characteristics, as private rms do not have stock prices to over- or under-react on. Common factor models largely describe the cross section of investment returns of both types of rms, suggesting that the common factors are likely aggregate risk factors. Finally, the cost of capital and rm valuations are similar across private and public rms
Gomez, Juan Pedro; Priestley, Richard & Zapatero, Fernando (2016)
Labor Income, Relative Wealth Concerns and the Cross Section of Stock Returns
The finance literature documents a relation between labor income and the cross-section of stock returns. One possible explanation for this is the hedg-ing decisions of investors with relative wealth concerns. This implies a negative risk premium associated with stock returns correlated with local undiversi able wealth, since investors are willing to pay more for stocks that help their hedging goals. We nd evidence that is consistent with these regularities. In addition, we show that the e ect varies across geographic areas depending on the size and variability of undiversi able wealth, proxied by labor income.
We study the predictability of stock returns using a pure macroeconomic mea- sure of the world business cycle, namely the world's capital to output ratio. This variable tracks variation in expected stock returns in a group of the major industrial economies in the presence of world nancial market based predictor variables. The world's capi- tal to output ratio exhibits strong out-of-sample predictive power in almost all countries studied. This is in contrast to nancial market based variables that almost never have out-of-sample forecasting power. Using the stock return predictability that we uncover, we nd that international versions of conditional asset pricing models perform well. The world capital to output ratio also predicts bond returns, interest rate changes and credit spreads. The results highlight the importance of world business conditions for nancial markets.
The relative predictability of returns and dividends is a central issue since it forms the paradigm to interpret asset price variation. A little studied question is how dividend smoothing, as a choice of corporate policy, a ects predictability. We show that, even if dividends are supposed to be predictable without smoothing, dividend smoothing can bury this predictability. Since aggregate dividends are dramatically more smoothed in the postwar period than before, the lack of dividend growth predictability in the postwar period does not necessarily mean that there is no cash ow news in stock price variations; rather, a more plausible interpretation is that dividends are smoothed. Using two alternative measures that are less subject to dividend smoothing {net payout and earnings { we reach the consistent conclusion that cash ow news plays a more important role than discount rate news in price variations in the postwar period.
Agarwal, Vikas; Gómez, Juan-Pedro & Priestley, Richard (2012)
Management compensation and market timing under portfolio constraints
This paper shows that portfolio constraints have important implications for manage- ment compensation and performance evaluation. In particular, in the presence of portfolio constraints, allowing for benchmarking can be bene cial. Benchmark design arises as an al- ternative e¤ort inducement mechanism vis-a-vis relaxing portfolio constraints. Numerically, we solve jointly for the manager s linear incentive fee and the optimal benchmark. The size of the incentive fee and the risk adjustment in the benchmark composition are increasing in the investor s risk tolerance and the manager s ability to acquire and process private information.
The relative predictability of returns and dividends is a central issue
since it forms the paradigm to interpret asset price variation. A little
studied question is how dividend smoothing, as a choice of corporate policy,
affects predictability. We show that, even if dividends are supposed to be
predictable without smoothing, dividend smoothing can bury this
predictability. Since aggregate dividends are dramatically more smoothed in
the postwar period than before, the lack of dividend growth predictability
in the postwar period does not necessarily mean that there is no cash flow
news in stock price variations; rather, a more plausible interpretation is
that dividends are smoothed. Using two alternative measures that are less
subject to dividend smoothing -- net payout and earnings -- we reach the
consistent conclusion that cash flow news plays a more important role than
discount rate news in price variations in the postwar period.
The spread in average returns between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the Chen, Roll and Ross (1986) factors. In addition, systematic risk and volatility fall sharply during large investment periods. Consistent with the predictions of both the q-theory and real options models, the systematic risk spread and fall in risk and volatility are largest for high q rms. Moreover, investment and asset growth factors can predict economic growth. Our evidence implies that much of negative investment (asset growth)-future returns relationship can be explained by rational pricing.
Gómez, Juan-Pedro; Priestley, Richard & Zapatero, Fernando (2009)
Implications of Keeping-Up-with-the-Joneses Behavior for the Equilibrium Cross Section of Stock Returns: International Evidence
64(6) , s. 2703- 273.
Priestley, Richard & Ødegaard, Bernt Arne (2007)
Linear and Nonlinear exchange rate exposure
26, s. 1016- 1037.
Hardouvelis, G.A.; Malliaropulos, D. & Priestley, Richard (2007)
The impact of the EMU on the equity cost of capital
26(2) , s. 305- 327.
Hardouvelis, G.A.; Malliaropulos, D. & Priestley, Richard (2006)
EMU and European stock market integration
79(1) , s. 365- 392.
The launch of the single currency in Europe in January 1999 was preceded by a period of regulatory harmonization, convergence in bond yields and inflation rates, and strict fiscal policy across the Eurozone countries. We examine whether the 1990s also were characterized by increased stock market integration. The results indicate that, as forward interest differentials benchmarked against Germany and inflation differentials benchmarked against the three best performing states shrank toward zero, stock markets converged toward full integration. The United Kingdom, a country that chose not to enter the Eurozone, shows no such increase in stock market integration.
Barr, David G. & Priestley, Richard (2004)
Expected returns, risk, and the integration of international bond markets
23(1) , s. 71- 97.
Priestley, Richard & Ødegaard, Bernt Arne (2004)
Exchange rate regimes and the price of exchange rate risk
82, s. 181- 188.
Priestley, Richard (2002)
Calculating the Probability of Failure of the Norwegian Banking Sector
12(1) , s. 21- 40.
Priestley, Richard (2001)
Time-varying persistence in expected returns
25(7) , s. 1271- 1286.
Antoniou, A.; Barr, D.G. & Priestley, Richard (2000)
Abnormal Stock Returns and Public Policy: The Case of the UK Privatised Electricity and Water Utilities
5, s. 93- 106.
Clare, A.D.; Oozer, M.C., Priestley, Richard & Thomas, S.H. (2000)
Modeling the Risk Premium on Eurodollar Bonds
9(March) , s. 61- 73.
Miffre, J. & Priestley, Richard (2000)
Sources of Systematic Risk in Futures and Spot Markets: A Study of Market Integration
27(7/8) , s. 933- 952.
Garrett, I. & Priestley, Richard (2000)
Dividend Behaviour and Dividend Signaling
35(2) , s. 173- 189.
Priestley, Richard & Malliaropulos, D. (1999)
Mean Reversion in S.E. Asian Stock Markets
6(4) , s. 355- 384.
Priestley, Richard; Clare, A. & Thomas, S. (1998)
Reports of Beta's Death are Premature: Evidence from the UK
22(9) , s. 1207- 1229.
Priestley, Richard; Antoniou, A. & Garrett, I. (1998)
Calculating the Equity Cost of Capital Using the APT: The Impact of the ERM
17(6) , s. 949- 966.
Priestley, Richard & Clare, A. (1998)
Risk Factors in the Malaysian Stock Market
6(1-2) , s. 103- 114.
Clare, Andrew & Priestley, Richard (1998)
Evidence in support of the CAPM from three South East Asian stock markets
2(2) , s. 145- 154.
Priestley, Richard; Antoniou, A. & Garrett, I. (1998)
Macroeconomic Variables as Common Pervaise Risk Factors and the Empirical Content of the Arbitrage Pricing Theory
5(3) , s. 221- 240.
Priestley, Richard; Antoniou, A. & Holmes, P. (1998)
The Effects of Stock Index Futures Trading on Stock Index Volatility: An Analysis of the Asymmetric Response of Volatility to News
18(2) , s. 151- 166.
Cooper, Ilan; Priestley, Richard & Mitrache, Andreea (2017)
A Global Macroeconomic Risk Model for Value, Momentum, and other Asset Classes
[Conference Lecture]. Event
Cooper, Ilan; Priestley, Richard & Mitrache, Andreea (2017)
A Global Macroeconomic Risk Model for Value, Momentum, and other Asset Classes
[Conference Lecture]. Event
Cooper, Ilan; Mitrache, Andreea & Priestley, Richard (2017)
A Global Macroeconomic Risk Model for Value, Momentum, and other Asset Classes
[Conference Lecture]. Event
Atanasov, Victoria; Cooper, Ilan, Priestley, Richard & Zhong, Junhua (2016)
The factor structure of time-varying discount rates
[Conference Lecture]. Event
Atanasov, Victoria; Cooper, Ilan, Priestley, Richard & Zhong, Junhua (2016)
The factor structure of time-varying discount rates
[Conference Lecture]. Event
Cooper, Ilan & Priestley, Richard (2014)
The Expected Returns and Valuations of Private and Public Firms
[Conference Lecture]. Event
Bøhren, Øyvind; Priestley, Richard & Ødegaard, Bernt Arne (2009)
Investor short-termism and firm value
[Report Research].
Bøhren, Øyvind; Priestley, Richard & Cooper, Ilan (2009)
Real investment, economic efficiency, and managerial entrenchment
[Report Research].
Priestley, Richard (2009)
Relative wealth concerns and the cross-section of stock returns
[Conference Lecture]. Event
Priestley, Richard (2008)
Real Investment and Stock Returns
[Conference Lecture]. Event
Priestley, Richard (2008)
Asset Pricing Implications of Relative Wealth Concerns
[Conference Lecture]. Event
Bøhren, Øyvind; Priestley, Richard & Ødegaard, Bernt Arne (2006)
The duration of equity ownership at the Oslo Stock Exchange 1989-1999
[Report Research].
To date little is known about how long equity ownership lasts, what determines its length, and whether ownership duration is related to rm performance. Using a unique time series of equity holdings over eleven years, we nd that on average the rm's largest owner stays less than three years and stays longer than owners with smaller stakes. The duration of nancial institutions and foreigners is shorter than that of individuals and industrial rms. We show that ownership duration is duration dependent as the probability of closing an equity position is a function of how long the owner has held the stake. Ownership duration appears to match the duration of the rm's investment projects. We nd no evidence that large owners vote by foot in the sense that bad news about earnings leads to duration ending. There is a negative relationship between ownership duration and a rm's performance in general, but the sign and strength of this relationship di ers across owner types. Long duration by nancial institutions and industrial corporations is negatively related to performance, whereas the opposite is true for individuals. This suggests that long term ownership may improve rm performance if the monitoring is direct as opposed to delegated.
