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The Time Series of the Cross Section of Asset Prices

64 Pages Posted: 25 Oct 2002  

Lior Menzly

University of Chicago - Booth School of Business

Pietro Veronesi

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Tano Santos

Columbia Business School; National Bureau of Economic Research (NBER)

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Date Written: August 22, 2002

Abstract

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.

Suggested Citation

Menzly, Lior and Veronesi, Pietro and Santos, Tano, The Time Series of the Cross Section of Asset Prices (August 22, 2002). CRSP Working Paper No. 541. Available at SSRN: https://ssrn.com/abstract=329641 or http://dx.doi.org/10.2139/ssrn.329641

Lior Menzly

University of Chicago - Booth School of Business ( email )

1101 East 58th Street
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Pietro Veronesi

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Tano Santos (Contact Author)

Columbia Business School ( email )

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United States
212-854-0489 (Phone)
212-316-9180 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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