Log-Normal Approximation of the Equity Premium in the Production Model

The conditional equity premium in the model with production is often approximated by assuming a jointly log-normal distribution of the marginal rate of substitution in consumption and the marginal productivity of capital. We show that, for standard parameterization, this premium is about one third less than that implied by a non-linear approximation of the Euler equations.

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Year of publication:	2010
Authors:	Heer, Burkhard ; Maussner, Alfred
Institutions:	CESifo
Subject:	equity premium \| log-normal approximation \| production CAPM

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Extent:	application/pdf
Series:	CESifo Working Paper Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 3311
Classification:	G12 - Asset Pricing ; C63 - Computational Techniques ; E22 - Capital; Investment (including Inventories); Capacity ; E32 - Business Fluctuations; Cycles
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008833923