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

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  • Jagannathan, Ravi
  • Kubota, Keiichi
  • Takehara, Hitoshi

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. The authors find that the labor beta drives out the size effect but not the book-to-market-price effect that is documented in the literature. Copyright 1998 by University of Chicago Press.

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  • Jagannathan, Ravi & Kubota, Keiichi & Takehara, Hitoshi, 1998. "Relationship between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market," The Journal of Business, University of Chicago Press, vol. 71(3), pages 319-347, July.
  • Handle: RePEc:ucp:jnlbus:v:71:y:1998:i:3:p:319-47
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