Toward a Quantitative General Equilibrium Asset Pricing Model with Intangible Capital
Review of Financial Studies 26 (2): 491-530, 2013, DOI: doi.org/10.1093/rfs/hhs121
61 Pages Posted: 15 Mar 2010 Last revised: 10 Mar 2017
Date Written: June 10, 2012
Abstract
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.
Keywords: Asset Pricing, General Equilibrium, Intangible Capital, Value Premium
JEL Classification: E13, E32, G12
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Optimal Investment, Growth Options, and Security Returns
By Jonathan Berk, Richard C. Green, ...
-
By Lu Zhang
-
A Cross-Sectional Test of a Production-Based Asset Pricing Model
-
Equilibrium Cross-Section of Returns
By Joao F. Gomes, Leonid Kogan, ...
-
Equilibrium Cross-Section of Returns
By Joao F. Gomes, Leonid Kogan, ...
-
Capital Investments and Stock Returns
By K.c. John Wei, Feixue Xie, ...
-
Capital Investments and Stock Returns
By K.c. John Wei, Feixue Xie, ...
-
Capital Investments and Stock Returns in Japan
By Sheridan Titman, K. C. John Wei, ...
-
Corporate Investment and Asset Price Dynamics: Implications for the Cross-Section of Returns
By Murray Carlson, Adlai J. Fisher, ...
-
By Eugene F. Fama and Kenneth R. French