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      Risk and return in a dynamic general equilibrium model

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      Author(s)
      Akdeniz, L.
      Date
      2000
      Source Title
      Journal of Economic Dynamics and Control
      Print ISSN
      0165-1889
      Publisher
      Elsevier
      Volume
      24
      Issue
      5
      Pages
      1079 - 1096
      Language
      English
      Type
      Article
      Item Usage Stats
      173
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      Abstract
      In this paper we examine the relationship between risk and return on productive assets using the intertemporal general equilibrium model of Brock (1982, Asset Prices in a Production Economy, the University of Chicago Press, Chicago, pp. 1-42) as a basis for a simulation study. Current computational techniques are used to solve the growth model of Brock (1979, An Integration of Stochastic Growth and the Theory of Finance - Part I: The Growth Model, Academic Press, New York, pp. 165-192) in order to analyze the underlying financial model. Contrary to recent empirical findings, we find that there is a theoretical basis for the linear relationship between risk and return. This apparent contradiction is due in part to the fact that the dynamic relationship between risk and return depends on the level of output.
      Keywords
      Expected stock returns
      Cross-section
      Common-stocks
      Market value
      Earnings
      Economy
      Growth
      Capm
      Permalink
      http://hdl.handle.net/11693/10933
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/S0165-1889(99)00037-8
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      • Department of Management 639
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