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Capital Share, Consumption Volatility and Long-run Redistribution Risks

Zong, Xiaoyu (2020): Capital Share, Consumption Volatility and Long-run Redistribution Risks.

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Capital return variability is a macroeconomic factor that exhibits significant explanatory power of long-run equity prices. In short-run, capital share risks create strong volatility effects on equity premium, as redistributive shocks that shift the share of income between the wealthy and the poor are not persistent. In long-run, capital return variability is positively correlated to stockholder consumption growth prospects and captures the long-term wealth redistribution trend. Exposure to capital return variability risks generates over a half of cross-sectional equity return variations.

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