Networks in Production: Asset Pricing Implications
University of California, Los Angeles (UCLA) - Anderson School of Management
December 26, 2016
In this paper, I examine asset pricing in a multisector model with sectors connected through an input-output network. Changes in the network are sources of systematic risk reflected in equilibrium asset prices. Two characteristics of the network matter for asset prices: network concentration and network sparsity. These two production-based asset pricing factors are determined by the structure of the network and are computed from input-output data. Consistent with the model predictions, I find a return spreads of 4.6% and -3.2% per year on sparsity and concentration beta-sorted portfolios, respectively.
Number of Pages in PDF File: 43
Keywords: Networks, Input-Output, Systematic Risk
JEL Classification: G12, G11, E13, E16
Date posted: June 9, 2015 ; Last revised: February 27, 2017