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| Author: | Jermann, U.J. |
| Title: | The equity premium implied by production |
| Journal: | Journal of Financial Economics
2010 : NOV, VOL. 98:2 p. 279-296 |
| Index terms: | investment technology USA models risk |
| Language: | eng |
| Abstract: | This research paper examines 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. |
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