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Capital Share Risk in U.S. Asset Pricing
Author(s) -
LETTAU MARTIN,
LUDVIGSON SYDNEY C.,
MA SAI
Publication year - 2019
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12772
Subject(s) - capital asset pricing model , consumption based capital asset pricing model , economics , equity premium puzzle , risk premium , explanatory power , consumption (sociology) , asset (computer security) , equity (law) , financial economics , monetary economics , social science , philosophy , computer security , epistemology , sociology , computer science , political science , law
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.