Learning and the capital age premium

Kai Li, Chi-Yang Tsou and Chenjie Xu

Journal of Monetary Economics, 2023, vol. 136, issue C, 76-90

Abstract: Imperfect information and learning are introduced into a production-based asset pricing model. Our model features slow learning about firms’ exposure to aggregate productivity shocks over time. In contrast to a full information case, our framework provides a unified explanation for the stylized empirical features of the cross-section of stocks that differ in capital age: old capital firms (1) have higher capital allocation efficiency; (2) are more exposed to aggregate productivity shocks and, hence, earn higher expected returns, which we refer to as capital age premium; and (3) have shorter cash-flow duration, when compared with young capital firms.

Keywords: Learning; Capital age; Cross-section of expected returns; Capital misallocation; Cash flow duration (search for similar items in EconPapers)
JEL-codes: E2 E3 G12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:136:y:2023:i:c:p:76-90

DOI: 10.1016/j.jmoneco.2023.02.001

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