Production Based Asset Pricing
This paper exploits producer's first order conditions to link asset prices to data on investment, output, etc. through marginal rates of transformation, just as consumer's first order conditions are commonly used to link asset prices to consumption data or proxies through marginal rates of substitution. It presents simulation economies analogous to the consumption based models of Mehra and Prescott (1985) and Backus, Gregory and Ziri (1986) that capture the size of the equity premium and the size and cyclical timing of the forward rate term premium
Published Versions
(1991): 209-238.
Published as "A Cross-Sectional Test of an Investment-Based Asset Pricing Model", Journal of Political Economy, Vol. 104, no. 3 (June 1996): 572-621. Published as "Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations", Journal of Finance, Vol. 46, no. 1