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Durability of Output and Expected Stock Returns

Author

Listed:
  • João F. Gomes
  • Leonid Kogan
  • Motohiro Yogo

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.

Suggested Citation

  • João F. Gomes & Leonid Kogan & Motohiro Yogo, 2009. "Durability of Output and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 941-986.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/648882
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    More about this item

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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