Abstract

http://ssrn.com/abstract=1742792
 
 

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Log-Normal Approximation of the Equity Premium in the Production Model


Burkhard Heer


University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Alfred Maussner


University of Augsburg - Faculty of Business and Economics

December 30, 2010

CESifo Working Paper Series No. 3311

Abstract:     
The conditional equity premium in the model with production is often approximated by assuming a jointly log-normal distribution of the marginal rate of substitution in consumption and the marginal productivity of capital. We show that, for standard parameterization, this premium is about one third less than that implied by a non-linear approximation of the Euler equations.

Number of Pages in PDF File: 11

Keywords: equity premium, log-normal approximation, production CAPM

JEL Classification: G12, C63, E22, E32

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Date posted: January 20, 2011  

Suggested Citation

Heer, Burkhard and Maussner, Alfred, Log-Normal Approximation of the Equity Premium in the Production Model (December 30, 2010). CESifo Working Paper Series No. 3311. Available at SSRN: http://ssrn.com/abstract=1742792

Contact Information

Burkhard Heer (Contact Author)
University of Augsburg ( email )
Universitätsstr. 2
Augsburg, 86159
Germany
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany
Alfred Maussner
University of Augsburg - Faculty of Business and Economics ( email )
Universitaetsstr. 16
86135 Augsburg
Germany
+49 821 598 4187 (Phone)
+49 821 598 4231 (Fax)
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