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Trade Induced Productivity Change and Asset Prices

45 Pages Posted: 30 Aug 2016 Last revised: 29 Sep 2017

Ruchith Dissanayake

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

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

Ruchith Dissanayake (Contact Author)

Queensland University of Technology, Business School - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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

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