Firms that concentrate their activities towards goods with higher income elasticity are more exposed to demand-driven risk since the consumption of high-consumption households is more exposed to aggregate shocks. These firms earn higher risk-adjusted equity returns. A portfolio that goes long on...

We document challenges to the notion of a trade-off between systematic risk and expected returns when analyzing the empirical ability of stock characteristics to predict excess returns. First, we measure individual stocks' exposures to all common latent factors using a novel high-dimensional...