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Time-to-produce, inventory, and asset prices

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  • Chen, Zhanhui

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.

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  • Chen, Zhanhui, 2016. "Time-to-produce, inventory, and asset prices," Journal of Financial Economics, Elsevier, vol. 120(2), pages 330-345.
    • Handle: RePEc:eee:jfinec:v:120:y:2016:i:2:p:330-345
    DOI: 10.1016/j.jfineco.2016.01.006
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    Cited by:

    1. Wang, Baolian, 2019. "The cash conversion cycle spread," Journal of Financial Economics, Elsevier, vol. 133(2), pages 472-497.
    2. Chuantao Cui & Leona Shao-Zhi Li, 2019. "High-speed rail and inventory reduction: firm-level evidence from China," Applied Economics, Taylor & Francis Journals, vol. 51(25), pages 2715-2730, May.
    3. Guo, Bin & Huang, Fuzhe & Li, Kai, 2022. "Time to build and bond risk premia," Journal of Economic Dynamics and Control, Elsevier, vol. 136(C).
    4. Lin, Qi & Lin, Xi, 2021. "Cash conversion cycle and aggregate stock returns," Journal of Financial Markets, Elsevier, vol. 52(C).
    5. Ruan, Xinfeng & Zhang, Jin E., 2021. "Time-varying uncertainty and variance risk premium," Journal of Macroeconomics, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Time-to-build; Time-to-produce; Inventory; Recursive preferences; Asset prices;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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