Journal of Financial Economics Vol. 98 No. 2 2010
The equity premium implied by production
open access
Abstract
This paper studies the determinants of the equity premium as implied by producers’ first-order conditions. A simple closed form expression is presented for the Sharpe ratio as a function of investment volatility and technology parameters. Calibrated to the US postwar economy, the model can match the historical first and second moments of the market return and the risk-free interest rate. The model also generates a very volatile Sharpe ratio and market price of risk.
- DOI
- 10.1016/j.jfineco.2010.04.007
- Volume
- 98
- Issue
- 2
- Pages
- 279-296
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref