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
Publisher:	Munich : Center for Economic Studies and ifo Institute (CESifo)
Subject:	Risikoprämie \| Capital Asset Pricing Model \| Statistische Verteilung \| Theorie \| equity premium \| log-normal approximation \| production CAPM

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Series:	CESifo Working Paper ; 3311
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	644796588 [GVK] hdl:10419/46532 [Handle]
Classification:	G12 - Asset Pricing ; C63 - Computational Techniques ; E22 - Capital; Investment (including Inventories); Capacity ; E32 - Business Fluctuations; Cycles
Source:	EconStor

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