Relationship between labor-income risk and average return: empirical evidence from the Japanese stock market
Abstract: In Japan, as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index beta can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the stock-index beta and the labor-beta together explain 75 percent of the variation. We find that the labor-beta drives out the size effect but not the book-to-market-price effect that is documented in the literature. We explore the extent to which these results are an artifact of seasonal patterns in labor-income growth rates as well as asset returns. In Japan, the book-to-market-price characteristic can be adequately captured by a particular factor-beta, as suggested by Fama and French (1993). This is in contrast to the findings reported by Daniel and Titman (1997) for the United States.
File(s): File format is application/pdf http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=638
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Discussion Paper / Institute for Empirical Macroeconomics
Publication Date: 1997