Аннотация:ABSTRACT A simple valuation model with time‐varying investment opportunities is developed and estimated. The model assumes that the investment opportunity set is completely described by the real interest rate and the maximum Sharpe ratio, which follow correlated Ornstein–Uhlenbeck processes. The model parameters and time series of the state variables are estimated using U.S. Treasury bond yields and expected inflation from January 1952 to December 2000, and as predicted, the estimated maximum Sharpe ratio is related to the equity premium. In cross‐sectional asset‐pricing tests, both state variables have significant risk premia, which is consistent with Merton's ICAPM.
Ключевые слова:Financial Markets and Investment Strategies, Stochastic processes and financial applications, Financial Reporting and Valuation Research
