Abstract

http://ssrn.com/abstract=1965388
 
 

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Industrial Asset Pricing with Endogenous Business Cycles


Marcus M. Opp


University of California, Berkeley - Finance Group

Christine A. Parlour


University of California, Berkeley - Finance Group

Johan Walden


University of California, Berkeley - Finance Group

December 11, 2011


Abstract:     
We develop a dynamic general equilibrium model with many different industries, in which firms set prices strategically in product markets. Our approach extends previous literature by endogenizing the market price of risk and allowing for more general risk structures. General equilibrium in the model is shown to exist under general conditions. Strategic interaction between firms amplifies business cycles, small changes in long-term growth rates can have drastic effects on the equilibrium outcome, whereas temporary changes in productivity have marginal impact, and the overall competitiveness of the economy only depends on long-term growth. A firm's expected returns are affected by the industrial environment in which it operates, in line with what has been observed in the empirical literature. Overall, our model suggests that industry characteristics should be informative about the expected returns of individual firms over the business cycle.

Number of Pages in PDF File: 36

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Date posted: November 29, 2011 ; Last revised: July 17, 2014

Suggested Citation

Opp, Marcus M. and Parlour, Christine A. and Walden, Johan, Industrial Asset Pricing with Endogenous Business Cycles (December 11, 2011). Available at SSRN: http://ssrn.com/abstract=1965388 or http://dx.doi.org/10.2139/ssrn.1965388

Contact Information

Marcus M. Opp (Contact Author)
University of California, Berkeley - Finance Group ( email )
Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
Christine A. Parlour
University of California, Berkeley - Finance Group ( email )
Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-643-9391 (Phone)
Johan Walden
University of California, Berkeley - Finance Group ( email )
545 Student Services Building
Berkeley, CA 94720
United States
(510) 643-0547 (Phone)
HOME PAGE: http://www.haas.berkeley.edu/faculty/walden.html
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