Working Paper: NBER ID: w7589
Authors: John Y. Campbell
Abstract: This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work, and on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF) that prices all assets in the economy. The behavior of the term structure of real interest rates restricts the conditional mean of the SDF, while patterns of risk premia restrict its conditional volatility and factor structure. Stylized facts about interest rates, aggregate stock prices, and cross-sectional patterns in stock returns have stimulated new research on optimal portfolio choice, intertemporal equilibrium models, and behavioral finance.
Keywords: No keywords provided
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stochastic discount factor (SDF) (D15) | asset pricing (G19) |
| term structure of real interest rates (E43) | stochastic discount factor (SDF) (D15) |
| patterns of risk premia (G11) | stochastic discount factor (SDF) (D15) |