Download This PaperDynamic Network Risk
62 Pages Posted: 7 Jul 2020
Date Written: June 8, 2020
Abstract
This paper examines the pricing of short-term and long-term dynamic network risk in the cross-section of stock returns. Stocks with high sensitivities to dynamic network risk earn lower returns. We rationalize our finding with economic theory that allows the stochastic discount factor to load on network risk through the precautionary savings channel. A one-standard deviation increase in long-term (short-term) network risk loadings associate with a 7.66% (6.71%) drop in annualized expected
returns.
Keywords: Network Risk, Firm Volatility, Cross Section Of Stock Returns
JEL Classification: G10, G12, C58
Suggested Citation: Suggested Citation
Ellington, Michael and Barunik, Jozef, Dynamic Network Risk (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=3622200 or http://dx.doi.org/10.2139/ssrn.3622200
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