51 Pages Posted: 30 Aug 2016 Last revised: 21 Mar 2017
Date Written: February 1, 2017
This study uses financial data to measure trade induced productivity change and assess the effects of trade induced productivity on macroeconomic dynamics and equity returns. Trade induced productivity shocks decrease consumption in short-term as the economy allocates resources towards exports and investment, which further raises productivity. I show that trade induced productivity shocks may plausibly contribute to growth subject to limited foreign import competition. I show that assets with higher sensitivity to trade induced productivity change have lower returns, on average, compared to assets with lower sensitivity. The negative risk premium is stronger within larger firms that invest more aggressively.
Keywords: factor model, asset pricing model, TMN returns, Trade Induced Productivity Change
JEL Classification: G12, F14, F65
Suggested Citation: Suggested Citation
Dissanayake, Ruchith, Trade Induced Productivity Change and Asset Prices (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2831046