Resumen de Firm-level productivity, risk, and return

Ayse Imrohoroglu, Selale Tüzel

• This paper provides new evidence about the link between firm-level total factor productivity (TFP) and stock returns. We estimate firm-level TFP and show that it is strongly related to several firm characteristics such as size, the book-to-market ratio, investment, and hiring rate. Low productivity firms earn a significant premium over high productivity firms in the following year, and this premium is countercyclical. We show that a production-based asset pricing model calibrated to match the cross section of measured firm-level TFPs can replicate the empirical relationship between TFP, many firm characteristics, and stock returns. Our results offer an explanation as to how these firm characteristics rationally predict returns