Toward a Quantitative General Equilibrium Asset Pricing Model with Intangible Capital
University of Minnesota - Carlson School of Management
Mariano Massimiliano Croce
University of North Carolina Kenan-Flagler Business School
Hong Kong University of Science & Technology (HKUST) - School of Business and Management
June 10, 2012
Review of Financial Studies, Forthcoming
We model investment options as intangible capital in a production economy in which younger vintages of assets in place have lower exposure to aggregate productivity risk. In equilibrium, physical capital requires a substantially higher expected return than intangible capital. Quantitatively, our model rationalizes a significant share of the observed difference in the average return of book-to-market-sorted portfolios (value premium). Our economy also produces (1) a high premium of the aggregate stock market over the risk-free interest rate, (2) a low and smooth risk-free interest rate, and (3) key features of the consumption and investment dynamics in the US data.
Number of Pages in PDF File: 61
Keywords: Asset Pricing, General Equilibrium, Intangible Capital, Value Premium
JEL Classification: E13, E32, G12Accepted Paper Series
Date posted: March 15, 2010 ; Last revised: October 3, 2012
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