Import Competition and the Cost of Capital

We investigate how globalization is reflected in asset prices. We use shipping costs to measure U.S. firms’ exposure to globalization. We find that firms in low shipping cost industries carry a 7.8 percent risk premium, suggesting that their cash-flows covary negatively with U.S. investors’ marginal utility. To understand the origins of this globalization risk premium, we develop a dynamic general equilibrium model of trade and asset prices....