Asset Pricing with Production and Labor

27 Pages Posted: 23 Jan 2001

See all articles by Qiang Dai

Qiang Dai

University of North Carolina (UNC) at Chapel Hill - Finance Area

Date Written: May 2001

Abstract

This paper proposes a novel asset pricing model featuring dynamic interactions between production firms' aggregate financial performance and their aggregate labor expense. The model represents a significant extension of the standard asset pricing framework with production but without labor. Asset pricing implications are derived at a level of generality comparable to Merton, Breeden, and Cox-Ingersoll-Ross. At the aggregate level, the model leads to a two-factor ICAPM with financial- and labor-based betas that can not, in general, be reduced to Breeden's CCAPM.

Keywords: CAPM, ICAPM, CCAPM, production, optimal financial policy, labor, human capital, asset pricing puzzles

JEL Classification: G12, D51

Suggested Citation

Dai, Qiang, Asset Pricing with Production and Labor (May 2001). Available at SSRN: https://ssrn.com/abstract=256925 or http://dx.doi.org/10.2139/ssrn.256925

Qiang Dai (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-7182 (Phone)

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