Asset Pricing with Production and Labor
27 Pages Posted: 23 Jan 2001
Date Written: May 2001
This paper proposes a novel asset pricing model featuring dynamic interactions between production firms' aggregate financial performance and their aggregate labor expense. The model represents a significant extension of the standard asset pricing framework with production but without labor. Asset pricing implications are derived at a level of generality comparable to Merton, Breeden, and Cox-Ingersoll-Ross. At the aggregate level, the model leads to a two-factor ICAPM with financial- and labor-based betas that can not, in general, be reduced to Breeden's CCAPM.
Keywords: CAPM, ICAPM, CCAPM, production, optimal financial policy, labor, human capital, asset pricing puzzles
JEL Classification: G12, D51
Suggested Citation: Suggested Citation