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 language | English (US) |
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Pages (from-to) | 941-986 |
Number of pages | 46 |
Journal | Journal of Political Economy |
Volume | 117 |
Issue number | 5 |
DOIs | |
State | Published - 2009 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics