Document Type
Article
Publication Date
4-30-2026
Abstract
We develop a general-equilibrium multi-industry model with endogenous product variety and study its implications for asset prices. We estimate the model with both the Generalized Method of Moments (GMM) and the Simulated Method of Moments (SMM) and show that the equity premium and risk-free rate are consistent with empirically reasonable risk aversions and discount factors. The market risk premium increases significantly with the interindustry product complementarity. The model also generates the additional novel predictions that the market risk premium increases with the intraindustry product substitutability, and that industries with more substitutable products have higher excess returns. We show support for these implications in our empirical analysis.
Recommended Citation
Bidian, F., Nunez, C., Subramanian, A., & Yang, B. (2026) Product variety and asset pricing. Management Science. https://doi.org/10.1287/mnsc.2024.05040
Peer Reviewed
1
Copyright
INFORMS
Included in
Finance and Financial Management Commons, Management Sciences and Quantitative Methods Commons
Comments
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Management Science in 2026 following peer review. This article may not exactly replicate the final published version. The definitive publisher-authenticated version is available online at https://doi.org/10.1287/mnsc.2024.05040.