The Equity Premium Implied by Production Export

@unpublished{jermann-2005, abstract = {We study the implications of producers' first-order conditions for the link between investment and aggregate asset prices. We provide a characterization of the determinants of the equity premium. Specifically, we present a closed form expression for the Sharpe ratio at steady-state as a function of investment volatility and adjustment cost curvature only. Calibrated to the U.S. postwar economy, the model can generate a sizeable equity premium, with reasonable volatility for market returns and risk free rates. The market's Sharpe ratio and the market price of risk are very volatile. Contrary to most models, our model generates a negative correlation between conditional means and standard deviations of excess returns.}, author = {Jermann, Urban J.}, citeulike-article-id = {250841}, citeulike-linkout-0 = {http://finance.wharton.upenn.edu/~jermann/prodappaper.pdf}, day = {7}, institution = {Wharton School of the University of Pennsylvania and NBER}, keywords = {asset\_pricing}, month = {April}, posted-at = {2005-07-09 14:42:48}, priority = {2}, title = {The Equity Premium Implied by Production}, url = {http://finance.wharton.upenn.edu/~jermann/prodappaper.pdf}, year = {2005} }

TY - UNPB ID - jermann-2005 L3 - citeulike-article-id:250841 N2 - We study the implications of producers’ first-order conditions for the link between investment and aggregate asset prices. We provide a characterization of the determinants of the equity premium. Specifically, we present a closed form expression for the Sharpe ratio at steady-state as a function of investment volatility and adjustment cost curvature only. Calibrated to the U.S. postwar economy, the model can generate a sizeable equity premium, with reasonable volatility for market returns and risk free rates. The market’s Sharpe ratio and the market price of risk are very volatile. Contrary to most models, our model generates a negative correlation between conditional means and standard deviations of excess returns. TI - The Equity Premium Implied by Production KW - asset_pricing AU - Jermann, Urban PY - 2005/04/07/ UR - http://finance.wharton.upenn.edu/~jermann/prodappaper.pdf ER -