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Joao F. Gomes, Leonid Kogan, Motohiro Yogo
NBER Working Paper No. 12986
Issued in March 2007
NBER Program(s): AP
EFG
---- Abstract -----
The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flow and stock returns of durable-good producers are exposed to higher systematic risk. Using the NIPA input-output tables, we construct portfolios of durable-good, nondurable-good, and service producers. In the cross-section, a strategy that is long on durables and short on services earns a sizable risk premium. In the time series, a strategy that is long on durables and short on the market portfolio earns a countercyclical risk premium. We develop an equilibrium asset-pricing model that explains these empirical findings.
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