Citation

Discussion Paper Details

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Title: Capital Share Risk in U.S. Asset Pricing

Author(s): Martin Lettau, Sydney C. Ludvigson and Sai Ma

Publication Date: January 2018

Keyword(s): capital share, inequality, Labor Share and value premium

Programme Area(s): Financial Economics and Macroeconomics and Growth

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 non-equity 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.

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Bibliographic Reference

Lettau, M, Ludvigson, S and Ma, S. 2018. 'Capital Share Risk in U.S. Asset Pricing'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12628