IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Technological Growth, Asset Pricing, and Consumption Risk over Long Horizons

Listed author(s):
  • Stavros Panageas


    (Finance The Wharton School - Univ. of Penn.)

  • Jianfeng Yu
Registered author(s):

    In this paper we develop a theoretical model in order to understand comovements between asset returns and consumption over longer horizons. We develop an intertemporal general equilibrium model featuring two types of shocks: small, frequent and disembodied shocks to productivity and large technological innovations, which are embodied into new vintages of the capital stock. The latter type of shocks affect the economy with significant lags, since firms need to make irreversible investments in the new types of capital and there is an option value to waiting. The model produces endogenous cycles, countercyclical variation in risk premia, and only a very modest degree of predictability in consumption and dividend growth as observed in the data. In the model, the conventional consumption CAPM holds conditionally. Yet, by conditioning down we show that its resulting unconditional version takes a form that resembles closely the version of the CAPM used in the literature on eventual or long run risk, and most closely Juliard and Parker (2005). We then use the model as a laboratory to show that in our simulated data the unconditional consumption CAPM performs badly, while its long-horizon version performs significantly better.

    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.

    File URL:
    File Function: main text
    Download Restriction: no

    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 93.

    in new window

    Date of creation: 03 Dec 2006
    Handle: RePEc:red:sed006:93
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:red:sed006:93. 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: (Christian Zimmermann)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.