Toward a quantitative general equilibrium asset pricing model with intangible capital

Hengjie Ai, Mariano Massimiliano Croce, Kai Li

Research output: Contribution to journalArticle

27 Scopus citations

Abstract

We model investment options as intangible capital in a production economy in which younger vintages of assets in place have lower exposure to aggregate productivity risk. In equilibrium, physical capital requires a substantially higher expected return than intangible capital. Quantitatively, our model rationalizes a significant share of the observed difference in the average return of book-to-market-sorted portfolios (value premium). Our economy also produces (1) a high premium of the aggregate stock market over the risk-free interest rate, (2) a low and smooth risk-free interest rate, and (3) key features of the consumption and investment dynamics in the U.S. data.

Original languageEnglish (US)
Pages (from-to)491-530
Number of pages40
JournalReview of Financial Studies
Volume26
Issue number2
DOIs
StatePublished - Feb 1 2013

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