Rasoul Foroughfard

Research

• Household Demand Dynamics and Equity Mispricing
  • Job Market Paper
  • Abstract: This paper studies equity mispricing associated with household demand for individual stocks. Conceptually, household demand shocks generate larger valuation distortions when less elastic institutional capital is available to absorb them. To quantify this mechanism, I construct a Price Impact Multiplier, which is the inverse of a stock's institutional absorption capacity and measures the model-implied price adjustment required for institutions to absorb a one-unit household demand shock. Empirically, household demand shocks scaled by the Price Impact Multiplier capture cross-sectional variation in equity mispricing over both short and long horizons. Long-short portfolios sorted on the resulting implied price impact generate abnormal return spreads of 1.36% over the subsequent quarter and 3.90% over the subsequent year.
• Who Responds to Changes in the Market Risk Premia, and How?
  • Abstract: Variation in market risk premia is reflected in the portfolio decisions of only a limited and identifiable subset of institutional investors. Using quarterly 13F holdings, I show that approximately 60% of institutions do not systematically adjust aggregate equity exposure as compensation for bearing market risk changes over time. Among those that do respond, exposure adjustments are highly heterogeneous in both sign and magnitude. To understand what drives these differences in exposure responses, I develop a simple framework in which investment horizons and short-run constraints determine investors' willingness and ability to adjust risk exposure. Consistent with the model's predictions, low-turnover and long-horizon investors, particularly pension funds, are significantly more likely to increase equity exposure when compensation for risk rises. These findings highlight the importance of a limited, identifiable set of investors who shift capital in response to changing risk compensation, while highlighting the lack of systematic exposure adjustment among the majority of investors.
• Net Buyback Dynamics and Risk
  • Abstract: This paper studies the premium associated with firms' cash-flow cyclicality by using payout composition as a revealed measure of the persistence of cash flows. I argue that firms distribute the permanent component of cash flows through dividends, while the transitory component is more likely to be paid out through share repurchases. The net buyback-to-dividend ratio therefore provides a proxy for firms' exposure to business cycles. I show that this ratio strongly co-moves with aggregate fluctuations and that buyback-dominated firms earn a positive premium, consistent with investors requiring compensation for holding assets with more cyclical cash flows.
• Industry Level Signals from Institutional Portfolio Reallocations
  • Abstract: This paper develops a framework to extract and quantify the information embedded in institutional investors' industry-level demand. Changes in portfolio allocations across industries are interpreted as signals about future returns, and investors are identified as industry experts based on the historical accuracy of their allocation shifts in predicting subsequent industry performance. Aggregating these expert signals yields a novel measure, Revealed Industry Information (RII). I show that RII strongly predicts future industry returns and generates economically significant abnormal performance that cannot be explained by standard asset pricing factors or industry characteristics. A long-short portfolio formed on RII earns a six-factor alpha of 1.6% per quarter after controlling for the Fama-French five factors and momentum.
• Granular Industry Fundamentals and Equity Forecasting
  • Abstract: What can granular industry fundamentals tell us about future equity prices? This paper examines whether real economic information from U.S. industries predicts subsequent equity returns. Using monthly measures of production, employment, hours worked, sales, and inventories across a broad panel of industries, I show that industry-level fundamentals predict both aggregate market returns and industry-level equity returns out of sample. The predictive content is strongest in upstream sectors such as manufacturing, transportation, and mining, suggesting that these industries contain early signals about future economic conditions. Different types of fundamentals convey distinct information: production and sales capture demand conditions, while labor-related measures and inventories reflect adjustment dynamics and uncertainty. Overall, the evidence suggests that granular real economic information is incorporated into equity prices only gradually, making industry fundamentals a useful source of information about expected returns.
  • Co-authored with: Elham Ghorbani

Teaching Experience