Networks in Production: Asset Pricing Implications
By Bernard Herskovic. Journal of Finance, 2017
124 citations recorded by the source corpus.
In this paper, I examine asset pricing in a multisector model with sectors connected through an input‐output network. Changes in the network are sources of systematic risk reflected in equilibrium asset prices. Two characteristics of the network matter for asset prices: network concentration and network sparsity. These two production‐based asset pricing factors are determined by the structure of the network and are computed from input‐output data. Consistent with the model predictions, I find return spreads of 4.6% and −3.2% per year on sparsity and concentration beta‐sorted portfolios, respectively.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/95494859c916b0035bb0501a1e9d7f84417ec4c3
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Citations in the corpus
- The propagation of monetary policy shocks in a heterogeneous production economy (2018, background): “Herskovic, Kelly, Lustig, and Van Nieuwerburgh (2016) and Herskovic (2018) study asset-pricing implications of production networks.”
- Production Networks: A Primer (2019, unknown): “Some recent examples include Herskovic et al. (2017), Herskovic (2018), and Gofman, Segal, and Wu (2018). (23)For comparison, Foerster et al.”
- Monetary Policy Through Production Networks: Evidence from the Stock Market (2017, unknown): “The standard view is that idiosyncratic shocks are irrelevant, because the law of large numbers applies (Lucas (1977)).”
- Systemic Risk in Financial Networks: A Survey (2020, unknown): “…of input-output networks and supply chains can induce small shocks to magnify in a similar manner as a financial network can amplify shocks to returns and affect asset prices (e.g., Acemoglu, Carvalho, Ozdaglar & Tahbaz-Salehi (2012); Barrot & Sauvagnat (2016); Ramı́rez (2017); Herskovic (2018)).”