Asset Returns with Non-Constant Elasticity of the Pricing Kernel

  • Erik Lüders
Part of the ZEW Economic Studies book series (ZEW, volume 24)


The purpose of this chapter1 is to derive the implications of non-constant elasticity of the pricing kernel on asset returns We wish to keep the analysis as general as possible and therefore we avoid a parameterization of the pricing kernel The results are thus purely qualitative, a quantification of the implications is presented in the following chapter.


Constant Elasticity Asset Price Risk Premium Asset Return Geometric Brownian Motion 
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  1. 1.
    This Chapter is based on Lüders [131].Google Scholar
  2. 2.
    This follows from the Theorem of Feynman Kac.Google Scholar
  3. 5.
    See also the discussion on p 26.Google Scholar
  4. 6.
    See p 26 of this monograph.Google Scholar
  5. 7.
    See for example Andersen, Bollerslev, Diebold and Ebens [4], Hentschel [93], Mayhew and Stivers [135], and Tauchen, Zhang and Liu [182].Google Scholar
  6. 8.
    For an overview on the estimation of diffusion models see Gourieroux and Jasiak [85] A recent development on the estimation of diffusion processes is found in Elerian, Chib and Shephard [59].Google Scholar
  7. 9.
    For an overview of the empirical evidence of the predictive power of financial ratios see also Chap 4.Google Scholar
  8. 10.
    Note that we define periods such that their length is 1 This simplifies the notation. We assume that T ≫ 1.Google Scholar
  9. 11.
    For a more detailed discussion see for example Ohlson [152] and Hess and Lüders [94].Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Erik Lüders
    • 1
  1. 1.Dépt. de Finance et Assurance Pavillon Palais-PrinceUniversité LavalQuébec (Quebec)Canada

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