An intertemporal asset-pricing model is constructed incorporating an explicit adjustment-cost technology. The capital stock can be altered by investment, but there are adjustment costs whi ch lower the marginal return of investment. In a model involving an i nfinitely-lived representative agent,...

A production-based asset pricing model explores the relationship between technological returns to scale and the time-series behavior of equilibrium asset returns. The authors find that stock prices are mean-reverting if there are strict diminishing returns in the underlying production...