Asset Pricing with Free Entry and Exit of Firms

Lorant Kaszab, Ales Marsal, Katrin Rabitsch

Publikation: Working/Discussion PaperWU Working Paper

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Abstract

We study the asset-pricing implications of changes in the variety of consumption goods which happens through free entry and exit of firms. Fluctuations in varieties drive a wedge between the measured and model-based (including variety growth) consumer price index making the pricing kernel as well as asset prices more volatile without driving up the volatility of consumption growth. Different from earlier endowment economy models of variety growth our model contains production which i) generates the correlations important for the explanation of the high mean and volatility of equity premium endogenously, and ii) leads to an increase of about 140 basis points in the risk-premia relative to the endowment model.
OriginalspracheEnglisch
ErscheinungsortVienna
HerausgeberWU Vienna University of Economics and Business
Seitenumfang13
PublikationsstatusVeröffentlicht - 1 Mai 2022

Publikationsreihe

NameDepartment of Economics Working Paper Series
Nr.324

WU Working Paper Reihe

  • Department of Economics Working Paper Series

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