The Time Series of the Cross Section of Asset Prices

65 Pages Posted: 20 Sep 2002 Last revised: 10 Mar 2022

See all articles by Lior Menzly

Lior Menzly

University of Chicago - Booth School of Business

Pietro Veronesi

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Tano Santos

Columbia Business School; National Bureau of Economic Research (NBER)

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Date Written: September 2002

Abstract

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.

Suggested Citation

Menzly, Lior and Veronesi, Pietro and Santos, Tano, The Time Series of the Cross Section of Asset Prices (September 2002). NBER Working Paper No. w9217, Available at SSRN: https://ssrn.com/abstract=332261

Lior Menzly

University of Chicago - Booth School of Business ( email )

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Pietro Veronesi

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Tano Santos (Contact Author)

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National Bureau of Economic Research (NBER)

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