References (1)


Citations (1)



Dynamic Networks and Asset Pricing

Andrea Buraschi

The University of Chicago; Imperial College Business School; Centre for Economic Policy Research (CEPR)

Paolo Porchia

IE Business School

December 21, 2012

AFA 2013 San Diego Meetings Paper

In the context of an equilibrium model with multiple risky assets, we map the characteristics of the network connecting firms' fundamentals to the cross-section of expected returns. We interpret network connectivity as the ability to transfer a distress state to other firms' fundamentals in a directed and timely manner. We show that 'central' firms, active at transferring but relative immune to distress, have lower P/D ratios and higher expected returns. We use corporate earnings to take the model to the data and estimate the network structure. In accordance with theoretical predictions, we find evidence of a positive centrality price of risk and a sizable centrality risk premium. Furthermore, network centrality helps to motivate the value premium as a distress causality risk premium: part of the expected return of value stocks in excess of growth stocks is a centrality premium in our results, and value stocks severely under-perform during economic downturns.

Number of Pages in PDF File: 33

Keywords: Dynamic Networks, Cross-Section of Expected Returns, Lucas Orchard

JEL Classification: G12, G14

Open PDF in Browser Download This Paper

Date posted: March 19, 2012 ; Last revised: December 23, 2012

Suggested Citation

Buraschi, Andrea and Porchia, Paolo, Dynamic Networks and Asset Pricing (December 21, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024483 or http://dx.doi.org/10.2139/ssrn.2024483

Contact Information

Andrea Buraschi
The University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
7738347123 (Phone)
HOME PAGE: http://www.andreaburaschi.com/

Chicago Booth School of Business Logo

Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
HOME PAGE: http://www.andreaburaschi.com/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Paolo Porchia (Contact Author)
IE Business School ( email )
Serrano 99
Madrid, 28006
+34917821706 (Phone)
+34 91 745 47 62 (Fax)
HOME PAGE: http://paolo-porchia.profesores.ie.edu/
Feedback to SSRN

Paper statistics
Abstract Views: 2,841
Downloads: 655
Download Rank: 30,032
References:  1
Citations:  1