NBER

Lior Menzly

School of Business Administration
University of Southern California
University Park 1421
Los Angeles, CA 90089
Tel: 213/740-6515

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Southern California

NBER Working Papers and Publications

September 2002The Time Series of the Cross Section of Asset Prices
with Tano Santos, Pietro Veronesi: w9217
In this paper we propose a general equilibrium model that successfully reproduces the historical experience of the cross section of US stock prices as well as the realized history of the market portfolio. The model achieves this while addressing traditional concerns in the asset pricing literature: A high equity premium and volatility of returns, the long horizon predictability, and a low volatility of the risk free rate. The model combines a rich payoff structure with a habit persistence discount factor, which allows us to identify the effect on prices of idiosyncratic cash flow shocks versus business cycle components.

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