Stochastic Discount Rates, Productivity Shocks and Capital Asset Pricing
This paper develops a production based asset pricing model under the assumption of a stochastic discount rate. By solving Tobin's q explicitly, we first show that productivity shocks are the main source of the time-varying behavior of expected asset returns and then derive an equilibrium relation between asset returns and both the productivity shocks and the growth rate of the marginal productivity of capital. In addition, we use aggregate data to show that over 40 percent of the stock market's annual returns are explained by next year's aggregate productivity shocks and the current year's differential adjustment cost. Our empirical results are consistent with the model's predictions and with earlier research that documents a strong association between ex-post asset returns and the macroeconomy. Copyright 1999 by Kluwer Academic Publishers
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 12 (1999)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://springerlink.metapress.com/link.asp?id=102990 |
When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:12:y:1999:i:1:p:21-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.