Time-to-produce, inventory, and asset prices

Zhanhui Chen

Journal of Financial Economics, 2016, vol. 120, issue 2, 330-345

Abstract: Time-to-build, time-to-produce, and inventory have important implications for asset prices and quantity dynamics in a general equilibrium model with recursive preferences. Time-to-build captures the delay in transforming new investments into productive capital, and time-to-produce captures the delay in transforming productive capital into output. Both delays increase risks in that time-to-build generates procyclical payouts, whereas the time-to-produce amplifies this procyclicality. Inventory smooths consumption and helps capture interest rate volatility even when the elasticity of intertemporal substitution is small. The model is consistent with a high equity premium, a high stock return volatility, and lead-lag relations between asset prices and macroeconomic quantities.

Keywords: Time-to-build; Time-to-produce; Inventory; Recursive preferences; Asset prices (search for similar items in EconPapers)
JEL-codes: E22 E23 G12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:2:p:330-345

DOI: 10.1016/j.jfineco.2016.01.006

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