59 Pages Posted: 30 Aug 2016 Last revised: 13 May 2017
Date Written: May 10, 2017
This study uses financial data to measure trade induced productivity change and assess its effects on macroeconomic dynamics and equity returns. I find that trade induced productivity change leads to high marginal wealth states since, in short-run, economy reallocates resources from consumption towards exports and investment. Assets with high sensitivity to the shock have lower expected returns since they deliver high returns when consumption is dear for investors. The negative risk premium is stronger within larger firms and high investment firms. I also show that trade induced productivity contributes to economic growth, especially in the case of limited foreign import competition.
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 (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2831046