Durability of output and expected stock returns

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

Research output: Contribution to journalArticlepeer-review

60 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

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