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New goods and asset prices

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  • Scanlon, Paul

Abstract

I extend the consumption capital asset pricing model to incorporate expanding product variety over time and states of nature. In the model, consumers have a love of variety, and consumption consists of different components: product groups and brands. By raising future marginal utility, growth in product groups increases the incentive to save and reduces the risk-free rate. By making marginal utility more volatile, variation in brand and quality growth magnifies consumption risk and raises the equity premium. Embedding new goods in a long-run risk setting has similar implications.

Suggested Citation

  • Scanlon, Paul, 2019. "New goods and asset prices," Journal of Financial Economics, Elsevier, vol. 132(3), pages 140-157.
    • Handle: RePEc:eee:jfinec:v:132:y:2019:i:3:p:140-157
    DOI: 10.1016/j.jfineco.2018.11.006
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    More about this item

    Keywords

    Equity premium; Innovation; New product introduction; Risk-free rate;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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