Learning and the Capital Age Premium

Kai Li (Corresponding), Chi-Yang Tsou, Chenjie Xu

Research output: Contribution to journalArticlepeer-review


Imperfect information and learning are introduced into a production-based asset pricing model. Our model features slow learning about firms’ exposure to aggregate productivity shocks over time. In contrast to a full information case, our framework provides a unified explanation for the stylized empirical features of the cross-section of stocks that differ in capital age: old capital firms (1) have higher capital allocation efficiency; (2) are more exposed to aggregate productivity shocks and, hence, earn higher expected returns, which we refer to as capital age premium; and (3) have shorter cash-flow duration, when compared with young capital firms.

Original languageEnglish
Pages (from-to)76-90
Number of pages15
JournalJournal of Monetary Economics
Early online date11 Feb 2023
Publication statusPublished - 1 May 2023


  • Capital age
  • Capital misallocation
  • Cash flow duration
  • Cross-section of expected returns
  • Learning


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