Labor income and predictable stock returns

• 成果类型: Article
• 署名作者: Santos, T; Veronesi, P
• 署名单位: University of Chicago; National Bureau of Economic Research; Columbia University; Centre for Economic Policy Research - UK
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhj006
• 发表日期: 2006
• 页码: 1
• 关键词: CROSS-SECTIONAL TEST; Expected returns; dividend yields; risk premia; asset; tests; earnings; CAPM; COVARIANCES; prices

摘要

We propose a novel economic mechanism that generates stock return predictability in both the time series and the cross-section. Investors' income has two sources, wages and dividends that grow stochastically over time. As a consequence the fraction of total income produced by wages fluctuates depending on economic conditions. We show that the risk premium that investors require to hold stocks varies with these fluctuations. A regression of stock returns on lagged values of the labor income to consumption ratio produces statistically significant coefficients and large adjusted R(2)s. Tests of the model's cross-sectional predictions on the set of 25 Fama-French portfolios sorted on size and book-to-market are also met with considerable support.