Journal of Financial Economics Vol. 120 No. 2 2016
Time-to-produce, inventory, and asset prices
Abstract
Time-to-build, time-to-produce, and inventory have important implications for asset prices and quantity dynamics in a general equilibrium model with recursive preferences. Time-to-build captures the delay in transforming new investments into productive capital, and time-to-produce captures the delay in transforming productive capital into output. Both delays increase risks in that time-to-build generates procyclical payouts, whereas the time-to-produce amplifies this procyclicality. Inventory smooths consumption and helps capture interest rate volatility even when the elasticity of intertemporal substitution is small. The model is consistent with a high equity premium, a high stock return volatility, and lead-lag relations between asset prices and macroeconomic quantities.
- DOI
- 10.1016/j.jfineco.2016.01.006
- Volume
- 120
- Issue
- 2
- Pages
- 330-345
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref