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Title:A note on the computation of the equity premium and the market value of firm equity PDF Logo
Authors:Heer, Burkhard
Maußner, Alfred
Issue Date:2010
Series/Report no.:CESifo working paper Fiscal Policy, Macroeconomics and Growth 3042
Abstract:Turnovsky (1995) derives in a continuous-time model of a decentralized economy that the correct specification of the firm's objective function is to maximize the initial value of its outstanding securities. The firm value is the discounted flow of real earnings. For the discrete-time version of the model, we show that the correct computation of the firm value needs to be modified. Depending on the specific formula employed, different values of the equity premium result.
Subjects:asset prices
firm value
equity premium
JEL:G12
C63
E22
E32
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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