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A martingale theory of asset pricing in a production economy

by: Parantap Basu
Mathematical Social Sciences, Vol. 20, No. 3. (December 1990), pp. 215-225.

X Abstract

This paper develops an asset pricing model for a production economy with endogenous labor supply and capital accumulation decision. The martingale valuation equation is found to be compatible with risk aversion for a class of economies with homogeneous utility functions and constant returns to scale technology. These new sufficient conditions for the martingale hypothesis provide a plausible economic environment in which asset prices obey the present value rule.

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