Future labor income growth and the cross-section of equity returns
- Authors
- Kim, Dongcheol; Kim, Tong Suk; Min, Byoung-Kyu
- Issue Date
- 1월-2011
- Publisher
- ELSEVIER
- Keywords
- Future labor income growth; Fama-French factors; Economic tracking portfolio; Intertemporal CAPM
- Citation
- JOURNAL OF BANKING & FINANCE, v.35, no.1, pp.67 - 81
- Indexed
- SSCI
SCOPUS
- Journal Title
- JOURNAL OF BANKING & FINANCE
- Volume
- 35
- Number
- 1
- Start Page
- 67
- End Page
- 81
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/113399
- DOI
- 10.1016/j.jbankfin.2010.07.014
- ISSN
- 0378-4266
- Abstract
- This paper examines the equilibrium relation between future labor income growth and expected asset returns; it proposes revisions in the expectation of future labor income growth as a macroeconomic state variable and suggests a three-factor model, including a factor related to this variable, along with the consumption growth factor and the market factor. The proposed future labor income growth factor is positively associated with the Fama-French factors and subsumes their explanatory power in explaining the cross-section of stock returns. These results provide a possible economic explanation for the roles of the Fama-French factors: they are compensation for higher exposure to the risk related to changes in the value of human capital. This paper also compares the performance of the proposed three-factor model with other competing models and finds that the proposed model specification better captures cross-sectional variation in average returns than any of the competing asset pricing models considered. (C) 2010 Elsevier B.V. All rights reserved.
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Collections - Korea University Business School > Department of Business Administration > 1. Journal Articles
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