Christian Heyerdahl-Larsen, BI Norwegian Business School
Preetesh Kantak, Indiana University
Abstract: This study shows that relative price dispersion impacts risk premia. Notably, firms associated
with goods and services that have increased (decreased) in price relative to the headline inflation
rate earn high (low) returns. We refer to this return spread of 0.88% per month as the relative
price premium. We rationalize the premium via a consumption-based asset-pricing model that
features imperfectly substitutable goods and an investor with preferences for the mix of goods
consumed. As shocks to relative prices induce the investor to consume a suboptimal bundle of
goods, high price dispersion signals bad times for the investor and the economy
Discussant: Alessandro Melone, Ohio State University
Bernd Schlusche, Federal Reserve Board of Governors
Abstract: We compile a comprehensive dataset of adverse cyber events experienced by U.S. firms and show that firms that have government and defense contracts, work on critical infrastructures and emerging technologies as well as firms that possess intellectual property face a higher risk of future cyber incidents. This risk also increases after an economically linked firm experiences a cyber incident. We categorize cyber events by the harm inflicted on firms' assets and operations and show that firms suffer significant value losses across multiple cyber categories. These losses also spill over to economically linked firms, thereby amplifying the negative effect of malicious cyber activity on the economy. The spillover effects are likely driven by increased cybersecurity risks rather than sentiment.
Abstract: We use FinBERT to extract information from earnings conference call transcripts to develop a novel and reliable measure of labor-shortage exposure. We demonstrate the validity of the measure by showing that states with higher levels of labor-shortage exposure experience lower future unemployment rates but higher wage growth and local labor market tightness, while firms with higher labor-shortage exposure have greater growth in future per-employee staff expenses. Firms with labor-shortage exposures experience lower earnings call CARs, future stock returns and operating performance. Firms respond to labor shortages by substituting labor with capital and R&D investments, and by producing more production-process patents. Such measures mitigate the negative effects on future performance. Our results demonstrate a fruitful application of machine learning to finance and provide insight into labor-capital substitution in response to increasingly expensive and scarce labor.
Discussant: Michele Dathan, Federal Reserve System
