The Globalization Risk Premium

92 Pages Posted: 29 Mar 2015 Last revised: 11 Jul 2018

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris

Erik Loualiche

University of Minnesota, Finance

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: January 1, 2018


We investigate how globalization is reflected in asset prices. We use shipping costs to measure firms' exposure to globalization. Firms in low shipping cost industries carry a 7 percent risk premium, suggesting that their cash-flows covary negatively with investors' marginal utility. We find that the premium emanates from the risk of displacement of least efficient firms triggered by import competition. These findings suggest that foreign productivity shocks are associated with times when consumption is dear for investors. We discuss conditions under which a standard model of trade with asset prices can rationalize this puzzle.

JEL Classification: F11, F4, G14

Suggested Citation

Barrot, Jean-Noel and Loualiche, Erik and Sauvagnat, Julien, The Globalization Risk Premium (January 1, 2018). Journal of Finance, Forthcoming, Available at SSRN: or

Jean-Noel Barrot

HEC Paris ( email )

1 rue de la Liberation
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Erik Loualiche (Contact Author)

University of Minnesota, Finance ( email )

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Julien Sauvagnat

Bocconi University ( email )

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Milan, MI 20136

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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Milan, 20136

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