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Roberto Marfe (CCA)

9 November 2016 @ 12:45

 

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Date:
9 November 2016
Time:
12:45
Event Category:
Event Tags:

“Labor Rigidity and the Dynamics of the Value Premium”

(Note: the seminar is on Wednesday)

abstract

This paper documents that (i) the labor-share is a strong predictor of both the value and duration premia, (ii) these premia are highly correlated, and (iii) the labor-share does not forecast the component of the value premium orthogonal to the duration premium. A simple equilibrium model with labor rigidity and heterogeneity in cash-flow durations rationalizes these stylized facts. The economic channel is a term-structure effect: labor rigidity boosts short-run dividend risk because wages are more responsive to permanent than transitory shocks. This leads to downward-sloping equity risk and to a cross-sectional duration premium. In turn, value firms earn a compensation over growth firms which is predicted by labor-share variation.