TY - JOUR
T1 - Does wage rigidity make firms riskier? Evidence from long-horizon return predictability
AU - Favilukis, Jack
AU - Lin, Xiaoji
PY - 2016/4/1
Y1 - 2016/4/1
N2 - The relationship between sticky wages and risk has important asset pricing implications. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, regions, or times with especially high or rigid wages are especially risky. If wages are sticky, then wage growth should negatively forecast future stock returns because falling wages are associated with even bigger falls in output, and increases in operating leverage. Indeed, this is the case in aggregate, industry, and U.S. state level data. Furthermore, this relation is stronger in industries and U.S. states with higher wage rigidity.
AB - The relationship between sticky wages and risk has important asset pricing implications. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, regions, or times with especially high or rigid wages are especially risky. If wages are sticky, then wage growth should negatively forecast future stock returns because falling wages are associated with even bigger falls in output, and increases in operating leverage. Indeed, this is the case in aggregate, industry, and U.S. state level data. Furthermore, this relation is stronger in industries and U.S. states with higher wage rigidity.
KW - Operating leverage
KW - Return predictability
KW - Wage rigidity
UR - http://www.scopus.com/inward/record.url?scp=84962061587&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84962061587&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2016.01.003
DO - 10.1016/j.jmoneco.2016.01.003
M3 - Article
AN - SCOPUS:84962061587
SN - 0304-3932
VL - 78
SP - 80
EP - 95
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
ER -
