Finance Papers

Document Type

Journal Article

Date of this Version

2009

Publication Source

Journal of Political Economy

Volume

117

Issue

5

Start Page

941

Last Page

986

DOI

10.1086/648882

Abstract

The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flows and stock returns of durable‐good producers are exposed to higher systematic risk. Using the benchmark input‐output accounts of the National Income and Product Accounts, we construct portfolios of durable‐good, nondurable‐good, and service producers. In the cross section, an investment strategy that is long on the durable‐good portfolio and short on the service portfolio earns a risk premium exceeding 4 percent annually. In the time series, an investment strategy that is long on the durable‐good portfolio and short on the market portfolio earns a countercyclical risk premium. We explain these findings in a general equilibrium asset‐pricing model with endogenous production.

Copyright/Permission Statement

© 2009 by The University of Chicago.

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Date Posted: 27 November 2017

This document has been peer reviewed.