Firm Networks and Asset Returns

80 Pages Posted: 21 Feb 2017 Last revised: 28 Feb 2018

Carlos Ramírez

Board of Governors of the Federal Reserve System

Date Written: 2017-01

Abstract

This paper argues that changes in the propagation of idiosyncratic shocks along firm networks are important to understanding variations in asset returns. When calibrated to match key features of supplier-customer networks in the United States, an equilibrium model in which investors have recursive preferences and firms are interlinked via enduring relationships generates long-run consumption risks. Additionally, the model matches cross-sectional patterns of portfolio returns sorted by network centrality, a feature unaccounted for by standard asset pricing models.

Keywords: Asset returns, Firm networks, Shock propagation

JEL Classification: C02, C6, D53, E32, G12, L10

Suggested Citation

Ramírez, Carlos, Firm Networks and Asset Returns (2017-01). FEDS Working Paper No. 2017-014. Available at SSRN: https://ssrn.com/abstract=2920450 or http://dx.doi.org/10.17016/FEDS.2017.014r1

Carlos Ramírez (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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

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