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Labor Rigidity and the Dynamics of the Value Premium

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  • Roberto Marfè

Abstract

This paper empirically and theoretically investigates the relation between labor rigidity and the value premium. Aggregate labor rigidity shifts dividend risk towards the short horizon and enhances the pricing of short-run risk. In turn, shorter duration equity deserves a premium over longer duration equity, that is the value premium obtains. Con- sistently, labor-share variation strongly explains the contemporaneous and intertemporal excess return of value firms over growth firms. A closed-form general equilibrium model reproduces the term-structure effect of labor rigidity and naturally gives rise to the value premium and its dynamics. The model is robust to many features of financial markets.

Suggested Citation

  • Roberto Marfè, 2015. "Labor Rigidity and the Dynamics of the Value Premium," Carlo Alberto Notebooks 429, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:429
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    Cited by:

    1. Roberto Marfè, 2016. "Corporate Fraction and the Equilibrium Term Structure of Equity Risk," Review of Finance, European Finance Association, vol. 20(2), pages 855-905.

    More about this item

    Keywords

    value premium; labor rigidity; term-structure; predictability; duration;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • 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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