Relationship Between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market
Chuo University - Graduate School of Strategic Management
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); SAIF; ISB
Journal of Business, Vol. 71, No. 3, July 1998
In Japan as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the stock-index beta and the labor-beta together explain 75 percent of the variation. We find that the labor-beta drives out the size effect but not the book-to-market-price effect that is documented in the literature. In Japan, the book-to-market-price characteristic can be adequately captured by particular factor-beta, as suggested by Fama and French (1993).
JEL Classification: G12, J31Accepted Paper Series
Date posted: July 22, 1998
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