Durability of output and expected stock returns

Joa˜O F. Gomes, Leonid Kogan, Motohiro Yogo

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)941-986
Number of pages46
JournalJournal of Political Economy
Volume117
Issue number5
DOIs
StatePublished - 2009

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Durability of output and expected stock returns'. Together they form a unique fingerprint.

  • Cite this