Offshore Activities and Global Consumption Risk

Abstract

We use 10-K filings to construct novel text-based measures of the extent to which U.S. firms are exposed to three offshore activities: the sale of output, purchase of input, and ownership of producing assets. Our framework has three advantages: we account for activities in all nations, we assess returns in a single market which mitigates market segmentation bias, and we use direct text-based measures of risk exposures to reduce error in variables. We find that global consumption growth risk is priced in the U.S. equity market through offshore sales. In contrast, offshore purchasing of inputs serves as a hedge.