Durability of Output and Expected Stock Returns / Joao F. Gomes, Leonid Kogan, Motohiro Yogo.

Format:

Book

Author/Creator:

Gomes, Joao F.

Contributor:

National Bureau of Economic Research.

Kogan, Leonid.

Yogo, Motohiro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12986.

NBER working paper series no. w12986

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flows and stock returns of durable-good producers are exposed to higher systematic risk. Using the benchmark input-output accounts of the National Income and Product Accounts, we construct portfolios of durable-good, nondurable-good, and service producers. In the cross-section, an investment strategy that is long on the durable-good portfolio and short on the service portfolio earns a risk premium exceeding 4 percent annually. In the time series, an investment strategy that is long on the durable-good portfolio and short on the market portfolio earns a countercyclical risk premium. We explain these findings in a general equilibrium asset-pricing model with endogenous production.

Notes:

Print version record

March 2007.