UCLA

In the first chapter, I propose that the nonfinancial component of financial firms' assets, in particular the growth opportunities associated with business operations, drives most of the variation in their equity valuation. I document this fact for a large class of intermediaries: life insurance companies. In particular, I decompose insurers' market equity returns into net financial asset returns and net business asset returns and show that these two components have very different risk exposures and are negatively correlated outside of the 2008-2009 financial crisis. The variation in life insurers' net business asset returns drives 81\% of the aggregate time series variation and 100\% of the cross-sectional variation in their market equity returns. For this reason, the current intense regulation on life insurers' net financial assets may be insufficient as a great deal of risk is derived from their net business assets which are comparatively under-regulated.

In the second chapter (with Andrea Eisfeldt), we review the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical, or even countercyclical. We provide a comprehensive set of capital reallocation stylized facts for the US, and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions, and on resource misallocation and aggregate productivity. Finally, we provide directions for future research. This article has been published in Annual Review of Financial Economics.