NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Durability of Output and Expected Stock Returns

Joao F. Gomes, Leonid Kogan, Motohiro Yogo

NBER Working Paper No. 12986
Issued in March 2007
NBER Program(s):   AP   EFG

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.

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This paper was revised on August 25, 2009

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Document Object Identifier (DOI): 10.3386/w12986

Published: Gomes, Joao, Leonid Kogan, and Motohiro Yogo. "Durability of Output and Expected Stock Returns." Journal of Political Economy 117, 5 (October 2009): 941-986.

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