Technology choice allows for substitution of production across states of nature and depends on state dependent risk aversion. In equilibrium, endogenous technology choice can counter a persistent negative productivity shock with an increase in investment. An increase in risk aversion intensifies...

Leading production-based asset pricing models predict that the sources of fluctuations in real investment and (scaled) stock prices are the same. Yet, extant empirical findings point to a large difference in these sources. We revisit this empirical question by deriving a present-value relation...