Review of Financial Studies Vol. 26 No. 2 2013
Toward a Quantitative General Equilibrium Asset Pricing Model with Intangible Capital
Abstract
We model investment options as intangible capital in a production economy in which younger vintages of assets in place have lower exposure to aggregate productivity risk. In equilibrium, physical capital requires a substantially higher expected return than intangible capital. Quantitatively, our model rationalizes a significant share of the observed difference in the average return of book-to-market-sorted portfolios (value premium). Our economy also produces (1) a high premium of the aggregate stock market over the risk-free interest rate, (2) a low and smooth risk-free interest rate, and (3) key features of the consumption and investment dynamics in the U.S. data.
- DOI
- 10.1093/rfs/hhs121
- Volume
- 26
- Issue
- 2
- Pages
- 491-530
- Language
- en
- Sources
- openalex crossref