Production-based measures of risk for asset pricing

Frederico Belo

Research output: Contribution to journalArticlepeer-review

27 Scopus citations


A stochastic discount factor for asset returns is recovered from equilibrium marginal rates of transformation inferred from producers' first-order conditions. The marginal rate of transformation implies a novel macro-factor asset pricing model that does a reasonable job explaining the cross-sectional variation in average stock returns with plausible parameter values. Using a flexible representation of firms' production technology, producers' ability to transform output across states of nature is estimated to be high, in contrast with what is typically assumed in standard aggregate representations of firms' production technology.

Original languageEnglish (US)
Pages (from-to)146-163
Number of pages18
JournalJournal of Monetary Economics
Issue number2
StatePublished - Mar 2010

Bibliographical note

Funding Information:
This paper is based on my Ph.D. thesis at the University of Chicago entitled “A pure production-based asset pricing model”. I am very grateful to the members of my dissertation committee, John Cochrane (Chair), John Heaton, Monika Piazzesi, and Pietro Veronesi for many helpful discussions. I thank participants of several conferences and seminars for suggestions, and to Hui Chen, Bob Goldstein, François Gourio, Nikolai Roussanov, and Maria Ana Vitorino, as well as the editor, Robert King, the associate editor, Urban Jermann, and an anonymous referee for helpful comments. I gratefully acknowledge financial support from the Portuguese Foundation for Science and Technology. All errors are my own.

Copyright 2010 Elsevier B.V., All rights reserved.


  • Cross-sectional asset pricing
  • Marginal rate of transformation
  • Production under uncertainty
  • Production-based asset pricing

Fingerprint Dive into the research topics of 'Production-based measures of risk for asset pricing'. Together they form a unique fingerprint.

Cite this