Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
959717 | Journal of Financial Economics | 2010 | 18 Pages |
Abstract
This paper studies the determinants of the equity premium as implied by producers’ first-order conditions. A simple closed form expression is presented for the Sharpe ratio as a function of investment volatility and technology parameters. Calibrated to the US postwar economy, the model can match the historical first and second moments of the market return and the risk-free interest rate. The model also generates a very volatile Sharpe ratio and market price of risk.
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Authors
Urban J. Jermann,