Properties of Asset Prices and Costs of Sticky Prices
نویسندگان
چکیده
Operating leverage, the fraction of fixed costs of production in total costs, has recently attracted considerable attention in the asset pricing literature. Indeed, the theoretical asset pricing literature often relies on some form of operating leverage to rationalize the value premium, the fact that firms with currently low valuations compared to assets in place have higher subsequent returns than predicted by the capital asset pricing model. Empirically, measures of operating leverage have predictive power in the cross-section of stock returns and can explain differences in book to market ratios across industries. These models in general assume perfectly flexible selling prices. In reality, however, firms are often constrained in how much (or even if) they can change their prices in the short run. Although this inflexibility has been a point of heated contention in macroeconomics, recent research based on scanner price data and confidential price data collected by the Bureau of Labor Statistics (BLS) unambiguously shows that prices could be indeed fixed in the short run. Furthermore, the degree of price stickiness varies wildly across sectors and firms. These stylized facts raise further crucial questions: Why don't firms change prices? How costly is it to not change a price? Is there crosssectional heterogeneity in price inflexibility which can be linked to expected returns?
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