Replication Package for "Climbing and Falling Off the Ladder: Asset Pricing Implications of Labor Market Event Risk"

Repository includes all source data and codes required to reproduce tables and figures from "Climbing and Falling Off the Ladder: Asset Pricing Implications of Labor Market Event Risk", which is forthcoming in the Journal of Financial Economics.

Paper Abstract: Administrative earnings data reveal that households are exposed to large, countercyclical idiosyncratic tail risks in labor earnings. I illustrate how these risks affect asset prices within an asset pricing framework with recursive preferences, heterogeneous agents and incomplete markets. Quantitatively, a model in which agents face a time-varying probability of experiencing a rare, idiosyncratic disaster, with parameters disciplined by data, matches the level and dynamics of the equity premium. Stock returns are highly informative about labor market event risk, and, consistent with model predictions, initial claims for unemployment, a proxy for labor market uncertainty, is a highly robust predictor of returns.