We use asset pricing insights to study importance of micro-level frictions for aggregate quantities. In our model, the relevant stochastic variable is a stationary growth rate (necessary to produce high Sharpe Ratios in a Long Run Risk world), as opposed to a trend-stationary level of...

A dynamic model featuring a stochastic technology frontier shows significant impact of technology adoption for asset prices. In equilibrium, firms operating with old capital are riskier because costly technology adoption restricts their flexibilities in upgrading to the latest technology, making...