Offshore Activities and Consumption Risk
University of Maryland - Department of Finance
S. Katie Moon
University of Southern California - Marshall School of Business
July 30, 2014
Robert H. Smith School Research Paper
We use 10-K filings to construct novel text-based measures of the extent to which publicly traded U.S. firms are exposed to three types of offshore activities: the sale of output, the purchase of input, and the ownership of assets that produce input. Our framework has three advantages: we comprehensively account for activities in all nations, we assess returns in a single market which mitigates market segmentation bias, and we use direct text-based measures of risk exposures to reduce error in variables. We find that consumption growth risk is significantly priced in the U.S. equity market through exposure to offshore sales. In contrast, offshore purchasing of inputs serves as a hedge. We report country-level consumption risk premia, which are higher in Europe and Africa, and lower in Asia.
Number of Pages in PDF File: 60
Keywords: Offshore Activities, Global Consumption Risk, Consumption CAPM, Country Risk Premium
JEL Classification: D23, F14, F23, G12, G15working papers series
Date posted: January 2, 2014 ; Last revised: July 31, 2014
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