Working Paper

Tradability of Output, Business Cycles, and Asset Prices

Abstract: I examine the effect of a firm's tradability, the proportion of output that is exported abroad, on its stock returns. There are three novel empirical findings: (1) firms with higher tradability have more cyclical asset returns; (2) firms with higher tradability have more cyclical earnings growth; (3) returns of a portfolio long on firms with the highest tradability and short on firms with the lowest tradability can predict the real exchange rate. The empirical patterns are consistent with the relative price adjustment of tradable and non-tradable goods to business cycles driven by endowment shocks.

Keywords: Asset returns; cyclicality; tradability;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2015-01-08

Number: 2015-3

Pages: 51 pages