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Networks in Production: Asset Pricing Implications

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  • BERNARD HERSKOVIC

Abstract

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.

Suggested Citation

  • Bernard Herskovic, 2018. "Networks in Production: Asset Pricing Implications," Journal of Finance, American Finance Association, vol. 73(4), pages 1785-1818, August.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:4:p:1785-1818
    DOI: 10.1111/jofi.12684
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