Trade Induced Productivity Change and Asset Prices

60 Pages Posted: 30 Aug 2016 Last revised: 13 Jun 2017

Ruchith Dissanayake

University of Alberta - School of Business, Department of Finance and Statistical Analysis, Students

Date Written: June 10, 2017

Abstract

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

Dissanayake, Ruchith, Trade Induced Productivity Change and Asset Prices (June 10, 2017). Available at SSRN: https://ssrn.com/abstract=2831046

Ruchith Dissanayake (Contact Author)

University of Alberta - School of Business, Department of Finance and Statistical Analysis, Students ( email )

2-24 Business Building
University of Alberta
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://www.ruchithdissanayake.com

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