The equity premium in Brock's asset pricing model

Akdeniz L., Dechert W. D.

Journal of Economic Dynamics and Control, cilt.31, sa.7, ss.2263-2292, 2007 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 31 Sayı: 7
  • Basım Tarihi: 2007
  • Doi Numarası: 10.1016/j.jedc.2006.06.008
  • Dergi Adı: Journal of Economic Dynamics and Control
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.2263-2292
  • Anahtar Kelimeler: Asset pricing models, Computational economics, Projection methods, Stochastic growth models
  • TED Üniversitesi Adresli: Evet

Özet

In this paper we combine dynamic programming methods with projection methods for solving stochastic growth models. As an application of these methods, we solve Brock's asset pricing model with a variety of parameterizations. We focused on finding parameterizations that result in an equity premium that is high relative to the variation in consumption. We show (both analytically and numerically) that the equity premium can be higher in a production based asset pricing model than it is in the consumption based asset pricing model, even when the real output level is the same in both models. © 2006 Elsevier B.V. All rights reserved.