Unveiling the Hidden Risk Premium of Knowledge-Intensive Firms: Introducing the HKR Factor (link):

This paper introduces a novel measure of knowledge capital risk derived from textual analysis of firms' 10-K filings. Using cosine similarity to R&D-related terms, I construct a High-Knowledge Risk (HKR) factor that captures firms' exposure to uncertainty from R&D outcomes. I demonstrate that the HKR factor offers significant explanatory power for cross-sectional equity returns, even after controlling for established equity pricing factors. This explanatory power persists in out-of-sample tests. Portfolios formed on HKR exhibit a substantial return premium, with high-HKR equities outperforming low-HKR equities over a 14-year period. A trading strategy based on the HKR factor also displays the highest Sharpe ratio among compared factors, indicating an attractive risk-adjusted return. These findings suggest that knowledge capital risk represents a distinct source of priced risk not fully captured by traditional asset pricing models and highlight the importance of knowledge capital risk in asset pricing.

Leverage Change and Stock Returns: The Role of Intangible Capital, with Roberto Mauad (link):

We examine how intangible capital (IK) affects the relationship between firm leverage and stock returns. Found that high-IK firms are more sensitive to leverage changes and likely to default due to lower collateral value. Showed through portfolio analysis that stocks with the largest leverage decreases substantially outperform those with increases, particularly for high-IK firms. We propose a new Intangible Delta Leverage (IDL) factor and develop a profitable investment strategy.

Macroeconomic Implications of Tail Risk in Stock Returns: The Role of Knowledge-Intensive Firms

I investigate how knowledge-intensive firms affect macroeconomic measurement and stability. I document that firms with high knowledge capital exhibit distinct tail risk patterns that invert during crisis periods. Through Monte Carlo simulations, I demonstrate that standard productivity metrics understate true productivity in economies with significant tail risk. I develop a theoretical framework showing how firms' innovation choices generate tail risk through the trade-off between research costs and potential productivity gains.

Firms in the upper tercile of the knowledge capital factor have had higher returns since 2009.