Stock price volatility and equity premium

Michael J. Brennan, Yihong Xia

Research output: Contribution to journalArticlepeer-review


A dynamic general equilibrium model of stock prices is developed which yields a stock price volatility and equity premium that are close to the historical values. Non-observability of the expected dividend growth rate introduces an element of learning which increases the volatility of stock price. Calibration to the U.S. dividend and consumption processes yield interest rate and stock price processes that conform closely to the styled facts for the U.S. capital market. © 2001 Elsevier Science B.V.
Original languageEnglish
Pages (from-to)249-283
Number of pages34
JournalJournal of Monetary Economics
Issue number2
Publication statusPublished - Apr 2001


  • E1
  • Equity premium
  • G1
  • Learning
  • Volatility


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