Networks in Production: Asset Pricing Implications

42 Pages Posted: 9 Jun 2015 Last revised: 16 Apr 2017

Bernard Herskovic

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: April 2017

Abstract

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.

Keywords: Networks, Input-Output, Systematic Risk

JEL Classification: G12, G11, E13, E16

Suggested Citation

Herskovic, Bernard, Networks in Production: Asset Pricing Implications (April 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2615074 or http://dx.doi.org/10.2139/ssrn.2615074

Bernard Herskovic (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA 90095-1481
United States

HOME PAGE: http://bernardherskovic.com

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