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Journal of Finance Vol. 74 No. 4 2019

Capital Share Risk in U.S. Asset Pricing

Martin Lettau; Sydney C. Ludvigson; Sai Ma1,2,3,4,5,6

1 Conference Board · 2 Federal Reserve Board of Governors · 3 Lars Research Institute · 4 G. Papanikolaou General Hospital · 5 Campbell Collaboration · 6 Federal Reserve Bank of New York

Abstract

A single macroeconomic factor based on growth in the capital share of aggregate income exhibits significant explanatory power for expected returns across a range of equity characteristic portfolios and nonequity asset classes, with risk price estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk premium, commensurate with recent asset pricing models in which redistributive shocks shift the share of income between the wealthy, who finance consumption primarily out of asset ownership, and workers, who finance consumption primarily out of wages and salaries.

DOI
10.1111/jofi.12772
Volume
74
Issue
4
Pages
1753-1792
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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