Capital Share Risk in U.S. Asset Pricing

52 Pages Posted: 22 Aug 2018

See all articles by Martin Lettau

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Sydney C. Ludvigson

New York University - Department of Economics; National Bureau of Economic Research (NBER)

Sai Ma

Board of Governors of the Federal Reserve

Multiple version iconThere are 4 versions of this paper

Date Written: August 13, 2018

Abstract

A single macroeconomic factor based on growth in the capital share of aggregate income exhibits significant explanatory power for expected returns across a range of equity characteristic portfolios and non-equity asset classes, with risk price estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk premium, commensurate with recent asset pricing models in which redistributive shocks shift the share of income between the wealthy, who finance consumption primarily out of asset ownership, and workers, who finance consumption primarily out of wages and salaries.

Keywords: risk premia, cross-section, capital share, labor share, inequality

JEL Classification: G11, G12, E25

Suggested Citation

Lettau, Martin and Ludvigson, Sydney C. and Ma, Sai, Capital Share Risk in U.S. Asset Pricing (August 13, 2018). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3230289

Martin Lettau

University of California - Haas School of Business ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
5106436349 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sydney C. Ludvigson (Contact Author)

New York University - Department of Economics ( email )

19 West 4th Street, 6th floor
New York, NY 10012
United States
212-998-8927 (Phone)
212-995-4186 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/ludvigsons/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sai Ma

Board of Governors of the Federal Reserve ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2870 (Phone)

HOME PAGE: http://saimaecon.com

Register to save articles to
your library

Register

Paper statistics

Downloads
66
rank
273,933
Abstract Views
182
PlumX Metrics