Asset Prices in Dynamic Production Economies with Time-Varying Risk
We examine the effect of changes in output uncertainty on the price of aggregate capital and on the prices of levered claims on capital. The relation between the volatility of the marginal product of capital and the price of capital depends on the level of capital adjustment costs and the elasticity of intertemporal substitution. For available estimates of this elasticity, the value of capital and risks are directly related while the value of levered equity claims on capital may be decreasing in risk. We use these results to analyze the argument that increased risk was responsible for the U.S. stock market decline of the 1970s. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
Volume (Year): 7 (1994)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.|
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www4.oup.co.uk/revfin/subinfo/|
When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:7:y:1994:i:4:p:781-801. 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: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.