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Production-based measures of risk for asset pricing

  • Belo, Frederico
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    A stochastic discount factor for asset returns is recovered from equilibrium marginal rates of transformation inferred from producers' first-order conditions. The marginal rate of transformation implies a novel macro-factor asset pricing model that does a reasonable job explaining the cross-sectional variation in average stock returns with plausible parameter values. Using a flexible representation of firms' production technology, producers' ability to transform output across states of nature is estimated to be high, in contrast with what is typically assumed in standard aggregate representations of firms' production technology.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304-3932(09)00182-2
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    Article provided by Elsevier in its journal Journal of Monetary Economics.

    Volume (Year): 57 (2010)
    Issue (Month): 2 (March)
    Pages: 146-163

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    Handle: RePEc:eee:moneco:v:57:y:2010:i:2:p:146-163
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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