Durability of Output and Expected Stock Returns
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Author(s)
Gomes, Joao
Kogan, Leonid
Yogo, Motohiro
Date Issued
October 2009
Journal
Journal of Political Economy
Publisher
University of Chicago Press
Citation
Gomes, João F., Leonid Kogan, and Motohiro Yogo. “Durability of Output and Expected Stock Returns.” Journal of Political Economy 117.5 (2009) : 941-986. © 2009 by The University of Chicago
Version
Final published version
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.
MIT Department
Sloan School of Management
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DOI of Published Version
https://doi.org/10.1086/648882
