The Time Series of the Cross Section of Asset Prices
University of Chicago - Booth School of Business
University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Columbia Business School; National Bureau of Economic Research (NBER)
NBER Working Paper No. w9217
In this paper we propose a general equilibrium model that successfully reproduces the historical experience of the cross section of US stock prices as well as the realized history of the market portfolio. The model achieves this while addressing traditional concerns in the asset pricing literature: A high equity premium and volatility of returns, the long horizon predictability, and a low volatility of the risk free rate. The model combines a rich payoff structure with a habit persistence discount factor, which allows us to identify the effect on prices of idiosyncratic cash flow shocks versus business cycle components.
Number of Pages in PDF File: 65working papers series
Date posted: September 20, 2002
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