The Globalization Risk Premium
(with Jean-Noël Barrot and Julien Sauvagnat)

Journal of Finance, October 2019, 74:5


First version: January 2015
This version:  August  2019

This paper's former title was Import Competition and the Cost of Capital.



Abstract:

In this paper, we investigate how globalization is reflected in asset prices. 
We use shipping costs to measure firms' exposure to globalization. Firms in 
low shipping cost industries carry a 7% risk premium, suggesting that their
cash flows covary negatively with investors' marginal utility. We find that 
the premium emanates from the risk of displacement of least efficient firms 
triggered by import competition. These findings suggest that foreign 
productivity shocks are associated with times when consumption is dear for 
investors. We discuss conditions under which a standard model of trade with
asset prices can rationalize this puzzle.



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Bibtex file

Download the globalization factor and firms' exposure to Import Competition

Download the full set of replication files for the Journal of Finance

Download a note on a static version of the model with closed-form comparative statics


Winner of the EUROFIDAI Data Award, 2019


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