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Financial Markets and the Real Economy

Edited by John H. Cochrane, Myron S. Scholes Professor of Finance, University of Chicago Graduate School of Business, US
This insightful collection examines the intersection between macroeconomics and finance. The key challenge in this area is to find the right measure of ‘bad times’ (the marginal value of wealth) to explain some assets’ high average returns or low prices as compensation for those assets' tendency to pay off poorly in bad times.
Extent: 720 pp
Hardback Price: £207.00 Web: £186.30
Publication Date: 2006
ISBN: 978 1 84376 192 1
Availability: In Stock
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  • Economics and Finance
  • Financial Economics and Regulation
  • Money and Banking
This insightful collection examines the intersection between macroeconomics and finance. The key challenge in this area is to find the right measure of ‘bad times’ (the marginal value of wealth) to explain some assets’ high average returns or low prices as compensation for those assets' tendency to pay off poorly in bad times.

The volume includes a carefully chosen selection of articles that survey the various approaches to this question – including the equity premium, consumption based models, general equilibrium models and labour income/idiosyncratic risk approaches. The editor also provides a comprehensive introduction which sets these papers in context and surveys the broader literature.
21 articles, dating from 1982 to 2004
Contributors include: J.Y. Campbell, G. Constantinides, E.F. Fama, K.R. French, L.P. Hansen, M. Lettau, S. Ludvigson, R. Mehra, E. Prescott, K. Singleton
Contents:
Acknowledgements
Introduction John H. Cochrane
PART I FACTS: TIME-VARIATION AND BUSINESS CYCLE CORRELATION OF RETURNS
1. John H. Cochrane (1999), ‘New Facts in Finance’
2. Eugene F. Fama and Kenneth R. French (1989), ‘Business Conditions and Expected Returns on Stocks and Bonds’
3. Martin Lettau and Sydney Ludvigson (2001), ‘Consumption, Aggregate Wealth, and Expected Stock Returns’
4. Eugene F. Fama and Kenneth R. French (1996), ‘Multifactor Explanations of Asset Pricing Anomalies’
5. Jimmy Liew and Maria Vassalou (2000), ‘Can Book-to-Market, Size and Momentum be Risk Factors that Predict Economic Growth?’
PART II EQUITY PREMIUM
6. Rajnish Mehra and Edward C. Prescott (1985), ‘The Equity Premium: A Puzzle’
7. John H. Cochrane and Lars Peter Hansen (1992), ‘Asset Pricing Explorations for Macroeconomics’
PART III CONSUMPTION MODELS
8. Lars Peter Hansen and Kenneth J. Singleton (1982), ‘Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models’
9. Lars Peter Hansen and Kenneth J. Singleton (1984), ‘Errata’
10. Martin Lettau and Sydney Ludvigson (2001), ‘Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying’
11. John Y. Campbell and John H. Cochrane (1999), ‘By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior’
PART IV PRODUCTION, INVESTMENT AND GENERAL EQUILIBRIUM MODELS
12. John H. Cochrane (1991), ‘Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations’
13. John H. Cochrane (1996), ‘A Cross-Sectional Test of an Investment-Based Asset Pricing Model’
14. Urban J. Jermann (1998), ‘Asset Pricing in Production Economies’
15. Michele Boldrin, Lawrence J. Christiano and Jonas D.M. Fisher (2001), ‘Habit Persistence, Asset Returns, and the Business Cycle’
16. Lior Menzly, Tano Santos and Pietro Veronesi (2004), ‘Understanding Predictability’
17. Thomas D. Tallarini Jr. (2000), ‘Risk-Sensitive Real Business Cycles’
18. Robert E. Hall (2001), ‘The Stock Market and Capital Accumulation’
PART V LABOR INCOME AND IDIOSYNCRATIC RISK
19. John Y. Campbell (1996), ‘Understanding Risk and Return’
20. George M. Constantinides and Darrell Duffie (1996), ‘Asset Pricing with Heterogeneous Consumers’
21. Alon Brav, George M. Constantinides and Christopher C. Geczy (2002), ‘Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence’
Name Index