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Dynamic Network Risk

Author

Listed:
  • Jozef Barunik
  • Michael Ellington

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.

Suggested Citation

  • Jozef Barunik & Michael Ellington, 2020. "Dynamic Network Risk," Papers 2006.04639, arXiv.org, revised Jul 2020.
    • Handle: RePEc:arx:papers:2006.04639
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    File URL: http://arxiv.org/pdf/2006.04639
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