60 Pages Posted: 30 Aug 2016 Last revised: 12 Aug 2017
Date Written: June 10, 2017
This study proposes a novel measure of trade induced productivity change and assesses its implications on macroeconomic dynamics and equity returns. Trade induced productivity leads to low consumption states since, in the short-run, resources are reallocated from consumption towards exports and investment. The decrease in terms-of-trade exacerbates the short-term effects on consumption. Assets with high sensitivity to the shock have lower expected returns since their payoffs co-vary negatively with investor's consumption. I show that the negative premium is stronger among high investment firms. Risk premium associated with the shock is robust to the inclusion of a multitude of other factors.
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 (June 10, 2017). Available at SSRN: https://ssrn.com/abstract=2831046