Learning about the Consumption Risk Exposure of Firms

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)33_Other conference paperpeer-review

View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Publication statusPresented - 25 Jun 2022

Conference

Title57th Annual Conference of the Western Finance Association (2022 WFA)
LocationHilton Portland Downtown
PlaceUnited States
CityPortland
Period24 - 27 June 2022

Abstract

We structurally estimate an investment-based asset pricing model, in which firms' exposure to macroeconomic risk is unknown. Bayesian beliefs about this parameter are updated from firms' and industry peers' comovement between their productivity and consumption growth. The model implies that discount rates rise endogenously with the perceived risk exposure of firms, thereby depressing investment and valuation ratios. We test these predictions in the data and find strong support for them. We also confirm that cross-sectional learning from peers is crucial, and that alternative Bayesian risk estimates, which ignore peer observations, do not predict firm variables.

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

Learning about the Consumption Risk Exposure of Firms. / Kim, Yongjin; Kuehn, Lars-Alexander; Li, Kai.

2022. 57th Annual Conference of the Western Finance Association (2022 WFA), Portland, Oregon, United States.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)33_Other conference paperpeer-review