Durability of Output and Expected Stock Returns
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 con...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
University of Chicago Press
2011
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| Online Access: | http://hdl.handle.net/1721.1/65095 https://orcid.org/0000-0001-9387-9728 |
| 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. |
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