Capital Share Risk in U.S. Asset Pricing

Martin Lettau, Sydney C. Ludvigson, Sai Ma

    Research output: Contribution to journalArticle

    Abstract

    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.

    Original languageEnglish (US)
    Pages (from-to)1753-1792
    Number of pages40
    JournalJournal of Finance
    Volume74
    Issue number4
    DOIs
    StatePublished - Aug 2019

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics

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  • Cite this

    Lettau, M., Ludvigson, S. C., & Ma, S. (2019). Capital Share Risk in U.S. Asset Pricing. Journal of Finance, 74(4), 1753-1792. https://doi.org/10.1111/jofi.12772