TY  - JOUR
AU  - Gomes,Joao
AU  - Yaron,Amir
AU  - Zhang,Lu
TI  - Asset Prices and Business Cycles with Costly External Finance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9364
PY  - 2002
Y2  - December 2002
UR  - http://www.nber.org/papers/w9364
L1  - http://www.nber.org/papers/w9364.pdf
N1  - Author contact info:
Joao Gomes
University of Pennsylvania
Wharton School
Philadelphia, PA  19104
E-Mail: gomesj@wharton.upenn.edu

Amir Yaron
The Wharton School
University of Pennsylvania
2256 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6367
Tel: 215/898-1241
Fax: 215/898-6200
E-Mail: yaron@wharton.upenn.edu

Lu Zhang
Fisher College of Business
The Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 585-267-6250
E-Mail: zhanglu@fisher.osu.edu
AB  - This paper asks whether the asset pricing fluctuations induced by the presence of costly external finance are empirically plausible. To accomplish this, we incorporate costly external finance into a dynamic stochastic general equilibrium model and explore its implications for the properties of the returns on key financial assets, such as stocks, bonds and risky loans. We find that the mean and volatility of the equity premium, although small, are significantly higher than those in comparable adjustment cost models. However, we also show that these results require a procyclical financing premium, a property that seems at odds with the data.
ER  -