Using a production based asset pricing framework in continuous time, this paper examines how exogenous productivity and wage rate shocks are transmitted to equilibrium asset prices. More specifically, our equilibrium pricing model suggests that productivity and wage rate shocks are perhaps the real cause for the observed time varying behavior of expected asset returns. A significant implication of the model is that ex-post asset returns in one period are shown to be related to the investment/output ratio in the same period (negative correlation) as well as the forecast of the growth rate of output in the next period (positive correlation).