Essays on Corporate Investment
نویسنده
چکیده
In an asset-pricing model calibrated to match the standard asset pricing empirical properties –in particular, the time-variation in the equity premium – we calculate the welfare (value) implications of sub-optimal capital budgeting decisions. Specifically, we calculate that an investment policy that ignores the timevariation in the equity premium, such as would occur with a cost of capital following the CAPM, incurs a 16% welfare loss. We also document the implications for a firm’s asset returns in this context.
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