Trade Induced Productivity Change and Asset Prices
45 Pages
Posted: 30 Aug 2016
Last revised: 29 Sep 2017
Queensland University of Technology, Business School - School of Economics and Finance
Date Written: September 29, 2017
Abstract
This study proposes a novel measure of trade induced productivity change and evaluates its implications on equity returns. Trade induced productivity causes high marginal consumption states since, in short-run, resources are re-allocated from consumption towards exports and investment. Assets with high sensitivity to the shock have lower expected returns since their payoffs co-vary negatively with investor's consumption. The risk premium is significantly stronger for high investment firms. I show that the trade induced productivity shock can rationalize the combined cross section of equity, commodity, and corporate bond returns and 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
Suggested Citation:
Suggested Citation
Dissanayake, Ruchith, Trade Induced Productivity Change and Asset Prices (September 29, 2017). Available at SSRN: https://ssrn.com/abstract=2831046 or http://dx.doi.org/10.2139/ssrn.2831046
