 Chinese consumption shocks and U.S. equity returnsKiryoung Lee, Minki Kim and Sing-Sen Lam International Review of Economics & Finance, 2024, vol. 96, issue PA Abstract: Motivated by the growing importance of the Chinese domestic economy for the global economic condition, we test whether the consumption risk of China matters for the cross-section of U.S. equity returns. We find that the two-factor international asset-pricing model with both U.S. and Chinese consumption risk explains 40% of the cross-sectional variation in U.S. equity returns. We also find a sizable risk premium of 7.08% per annum. This finding is robust to different estimation approaches, portfolio groups, controlling for other equity factors, and using individual equities. For economic mechanism, we find that it is the discount rate channel that is related to investors’ risk aversion, sentiment, and economic uncertainty through which Chinese consumption matters for the U.S. equity returns. Also, the result is not entirely driven by Chinese investors participating in the U.S. Overall, we present equity market-based novel evidence of the importance of Chinese macro fundamentals for the U.S. Keywords: International asset-pricing model; Cross-section of equity returns; Chinese consumption (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pa:s1059056024005033 DOI: 10.1016/j.iref.2024.103511 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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