Document Type
Article
Publication Date
2-14-2018
Abstract
We find that consumption risk is lower in states that implement countercyclical fiscal policies. Moreover, firms with an investor base that is concentrated in countercyclical states have lower stock returns, along with firms that relocate their headquarters to a countercyclical state. Therefore, countercyclical fiscal policies lower the consumption risk of investors and, consequently, their required equity return premium. This conclusion is confirmed by smaller declines in market participation during recessions in countercyclical states. Overall, the location of a firm’s investor base enables state-level fiscal policy to influence stock returns.
Recommended Citation
Da, Z., Warachka, M., & Yun, H. (2018). Fiscal policy, consumption risk, and stock returns: Evidence from U.S. states. Journal of Financial and Quantitative Analysis, 53(1), 109-136. https://doi.org/10.1017/S0022109017000977
Peer Reviewed
1
Copyright
Michael G. Foster School of Business, University of Washington
Comments
This article was originally published in Journal of Financial and Quantitative Analysis, volume 53, issue 11, in 2018. https://doi.org/10.1017/S0022109017000977