Finance and Economics Discussion Series (FEDS)
February 2017 (Revised February 2018)
Firm Networks and Asset Returns
Abstract:
This paper argues that changes in the propagation of idiosyncratic shocks along firm networks are important to understanding variations in asset returns. When calibrated to match key features of supplier-customer networks in the United States, an equilibrium model in which investors have recursive preferences and firms are interlinked via enduring relationships generates long-run consumption risks. Additionally, the model matches cross-sectional patterns of portfolio returns sorted by network centrality, a feature unaccounted for by standard asset pricing models.
Accessible materials (.zip)
Original paper: PDF | Accessible materials (.zip)
Keywords: Equilibrium asset prices, Inter-firm relationships, Networks, Shock propagation
DOI: https://doi.org/10.17016/FEDS.2017.014r1
PDF: Full Paper