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Can a Time-to-Plan Model explain The Equity Premium Puzzle

Beaubrun-Diant, Kevin (2005), Can a Time-to-Plan Model explain The Equity Premium Puzzle, Economics Bulletin, 7, 2, p. 1-8

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Article accepté pour publication ou publié
External document link
http://economicsbulletin.vanderbilt.edu/2005/volume7/EB-04G10006A.pdf
Date
2005
Journal name
Economics Bulletin
Volume
7
Number
2
Publisher
Vanderbilt University
Pages
1-8
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Author(s)
Beaubrun-Diant, Kevin
Abstract (EN)
This paper proposes a quantitative evaluation of the time-to-plan technology in order to investigate up to which point this mechanism could constitute a satisfactory alternative to the well-known capital adjustment cost technology. We show that the time-to-plan mechanism reproduces a realistic risk-free rate, whilst being capable of generating a substantial equity premium. About the model's explanation of the business cycle, it turns out that the model predicts a perfectly positive and significant correlation between employment and output.
Subjects / Keywords
Investment delays; Business cycle; Asset return puzzles
JEL
E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
G1 - General Financial Markets