PhD De­fence - Fre­derik Per­min

In order to obtain the PhD degree, Frederik Permin has submitted his thesis entitled:

Essays on Empirical Asset Pricing with Biases and Frictions

This thesis examines how investor behavior affects asset prices and why some stocks are more susceptible to behavioral biases and sentiment-driven demand. The first chapter introduces firm uniqueness as a determinant of valuation uncertainty and investor disagreement, showing that more unique firms exhibit greater turnover and risk, but lower expected returns when short-selling is constrained. The second chapter develops a measure of arbitrage risk combining idiosyncratic risk and equity duration, finding that momentum profits are concentrated among high-arbitrage-risk firms but subsequently reverse over the long term. The third chapter examines how sentiment exposure affects downside risk and factor timing, showing that sentiment-neutral portfolios have lower downside risk and that sentiment exposure predicts the sentiment state in which factor premia are earned. Overall, the thesis demonstrates that these characteristics help explain important cross-sectional differences in expected returns and risk. Collectively, the findings highlight the importance of accounting for stocks' susceptibility to behavioral biases and sentiment-driven demand in asset pricing and portfolio construction.