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Adjustment Costs and Capital Asset Pricing
Author(s) -
HUFFMAN GREGORY W.
Publication year - 1985
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1985.tb04992.x
Subject(s) - consumption based capital asset pricing model , economics , capital asset pricing model , asset (computer security) , capital (architecture) , point (geometry) , capital asset , cost of capital , financial economics , microeconomics , finance , computer science , profit (economics) , geometry , computer security , mathematics , archaeology , history
Discrete‐time models of asset pricing have hitherto generally avoided studying the relationship between the underlying technology inherent in the economy and the determinants of the price of capital. A fully articulated economy is constructed in which there is a nontrivial technology for producing capital. The existence of adjustment costs in augmenting the quantity of capital has interesting implications for the stochastic properties of asset prices, as well as other macroeconomic variables. Examples of such economies are used to illustrate this point.