Date of this Version
Journal of Financial Economics
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.
© 2010. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.
Jermann, U. J. (2010). The Equity Premium Implied by Production. Journal of Financial Economics, 98 (2), 279-296. http://dx.doi.org/10.1016/j.jfineco.2010.04.007
Date Posted: 27 November 2017
This document has been peer reviewed.