Relationship between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market

33 Pages Posted: 29 Oct 1997

See all articles by Keiichi Kubota

Keiichi Kubota

Chuo University - Graduate School of Strategic Management

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Hitoshi Takehara

Graduate School of Business and Finance

Multiple version iconThere are 2 versions of this paper

Abstract

In Japan, as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index beta can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the stock-index beta and the labor-beta together explain 75 percent of the variation. We find that the labor-beta drives out the size effect but not the book-to-market-price effect that is documented in the literature. We explore the extent to which these results are an artifact of seasonal patterns in labor-income growth rates as well as asset returns. In Japan, the book-to-market-price characteristic can be adequately captured by a particular factor-beta, as suggested by Fama and French (1993).

JEL Classification: G0, G1, G11, G12, G15, F3, F30

Suggested Citation

Kubota, Keiichi and Jagannathan, Ravi and Takehara, Hitoshi, Relationship between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market. Available at SSRN: https://ssrn.com/abstract=44834 or http://dx.doi.org/10.2139/ssrn.44834

Keiichi Kubota

Chuo University - Graduate School of Strategic Management ( email )

1-13-27, Kasuga
Bunkyo-ku
Tokyo, 112-8551
Japan
81-3-3817-7478 (Phone)
81-3-3817-7444 (Fax)

Ravi Jagannathan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
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Evanston, IL 60208
United States
847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Hitoshi Takehara

Graduate School of Business and Finance ( email )

1-6-1 Nishiwaseda, Shinjyuku-ku
Tokyo, Tokyo 169-8050
Japan
+81-35286-8419 (Phone)

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