Labor Income, Relative Wealth Concerns, and the Cross-section of Stock Returns∗
نویسندگان
چکیده
The finance literature documents the relation between labor income and the crosssection of stock returns. A possible explanation is the hedging of investors with relative wealth concerns who pay a premium for securities that help them to keep up with their peers. Relative wealth concerns imply a local effect and a negative risk premium associated with the risk factor, since investors are willing to overpay for securities that help their hedging goals. We find evidence that is consistent with these regularities. In addition, we show that the effect varies across geographic areas depending on the size and variability of the risk factor –undiversifiable wealth, proxied by labor income. JEL Codes: G15, G12, G11.
منابع مشابه
The Effect of Relative Wealth Concerns on the Cross-section of Stock Returns∗
We test the cross section implications of an asset pricing model where agents have relative wealth concerns with respect to a reference group which we call their peers. The literature suggests two reasons (not mutually exclusive) why investors might want to hedge local risk resulting from relative wealth concerns: keeping up with the Joneses preferences and competition for local assets in short...
متن کاملConsumption, Aggregate Wealth and Expected Stock Returns
This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement in wealth one that produces a deviation from its shared trend with consumption and labor income. Using U.S. quarterly stock market data we find that these trend deviations in wealth are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find ...
متن کاملNber Working Paper Series the Returns on Human Capital: Good News on Wall Street Is Bad News on Main Street
We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. The market portfolio includes financial and human wealth. We impute the residual of consumption growth innovations that cannot be attributed to either news about financial asset returns or future ...
متن کاملThe Effect of tax composition On the share of net capital stock Industry sector with ARDL approach
Importance of forming and the amount of capital stock in the industrial sector due to higher added value than other economic sectors in the growth and economic development, especially in the economic rise of paramount importance.On the other hand, taxes due to stabilization roles, allocation and distribution of income in the economy as one of the variables affecting the process are the investme...
متن کاملThe effect of wage growth caused by stock market liquidity on income inequality and poverty in developed and developed countries
One of the significant incentives of the investors to enter the capital market is to earn profits and finally increase wealth. However, one of the most important concerns of the investors while investing in the stock market is the liquidity of the stocks. Thus, the high liquidity of the stock market reduces the risk of non-liquidity of the stock, as well as reduces the cost of capital accumulat...
متن کامل