Asset pricing with disagreement and uncertainty about the length of business cycles daniel andrei bruce carliny michael haslerz july 24, 2017 abstract we study an economy with incomplete information in which two agents are uncertain and disagree about. This otherwise comprehensive book doesnt have any option pricing in it, though blackscholes is a cornerstone of finance. He was elected fellow of the econometric society in 2001, served as vicepresident of the american finance association in 2008, and was elected president of this learned society. Financial markets, princeton university press, princeton, 1997.
Asset pricing solutions still missing 16 24th november 2006 1 problem 1 this is the most basic of asset pricing questions. Topics in asset pricing hebrew university of jerusalem. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, cochrane builds a unified account of modern asset pricing. Samuelson award for scholarly writing on lifelong financial security, john cochranes asset pricing now appears in a revised. Requirements and grading requirements for the course include attending lectures, several problem sets, a group presentation, a midterm exam and a final exam. Asset pricing theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. The stochastic discount factor sdf is a concept in financial economics and mathematical finance. Cochrane traces the pricing of all assets back to a single ideaprice equals expected discounted payoffthat captures the macroeconomic risks underlying each securitys value. In the reading list i will refer to this book as cochrane.
Costis skiadas develops in depth the fundamentals of arbitrage pricing, meanvariance analysis, equilibrium pricing, and optimal consumptionportfolio choice in discrete settings, but with emphasis. I examine lettau and ludvigsons 2001a 2005 consumption to wealth ratio cay. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Asset pricing is extremely readable, as cochrane stresses economic intuition over formal proofs. As a small step down this road, cochrane and piazzesi 2005 2008 find that. Cochrane asset pricing 2001 princeton university press. Article pdf available in journal of economic behavior. Asset pricing with disagreement and uncertainty about the. Cochrane traces the pricing of all assets back to a single idea price equals expected. To study how liquidity affects asset pricing, it is useful to place it in the context of standard asset pricing theory. Cochrane traces the pricing of all assets back to a single idea price equals expected discounted payoff that. Im a professor of finance at the university of chicago booth school of business. Cochrane, asset pricing revised edition, princeton university press, princeton.
Law of one price and existence of a discount factor. Asset pricing theory all stems from one simple concept. The lectures and pdfs of the whiteboards should be enough. Consumptionbased model and overview an investor must decide how much to save and how much to consume, and what portfolio of assets to hold. I do research in asset pricing and monetary economics. Lewellen, jonathan, stefan nagel, and jay shanken 2010 a skeptical appraisal od asset pricing tests journal of financial economics 96, 175194. Doesitdescribethewaytheworld does work,orthewaytheworld should work. Asset pricing wikibooks, open books for an open world. The literature recognizes the possibility that the pricing kernel can be disconnected from the marginal rates of substitution or transformation in the real economy without requiring arbitrage opportunities cochrane, 2001. In addition, lecture notes and the suggested reading list are provided. Model speci cation and econometric assessment by kenneth singleton, isbn 0691122970. We thank frederico belo, hui chen, anna cieslak, john cochrane, nicolae garleanu, joao.
The official pdf file is available at foundations and trends in finance and on the authors website. Samuelson award for scholarly writing on lifelong financial security, john cochrane s asset pricing now appears in a revised edition that unifies and brings. Three decades of evidence allows for an examination of the relationship between asset pricing anomalies and macroeconomic risk over multiple economic cycles8. We thought that the crosssection of expected returns came from the capm. Cochrane asset pricing chapter 20, time series predictability. I became a fan of john cochrane because of this book. Samuelson award for scholarly writing on lifelong financial security, john cochranes asset pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane 2001, asset pricing, princeton university press. Themarginalutility loss of consuming a little less todayand buying a little more of the asset.
Cochrane traces the pricing of all assets back to a single ideaprice equals expected discounted. This will be a secondary reference, but you should already have a copy from theoretical asset pricing. The current study tests whether the slope of the pricing kernel depends on investor sentiment. This logic led him to develop the implications of a productionbased asset pricing model in which covariances of asset returns with macroeconomic measures of investment are important risk factors. Cochrane and hansen 1992 survey a variety of bounds, including bounds that. Asset pricing theory 12 1 consumptionbased model and overview 1. Asset pricing tests are performed using the period january 1975 to december 2006. Pdf solutions to problems in asset pricing linh kim.
It tries to put all the asset pricing issues in a single framework, which makes the topic much more interesting and much easier to understand. Ive been at the university of chicago my entire professional life, since getting my phd from the university of california at berkeley in 1986. Chicago il 60637 email protected march 26, 2001 this is a very preliminary draft. Asset pricing theory shares the positive versus normative tension presentintherestofeconomics. Evaluating the specification errors of asset pricing models. Cochrane 1996 responded to the failure of the ccapm by noting that the production side of the economy also must satisfy dynamic euler equations. An overview of asset pricing models andreas krause university of bath school of management phone.
Cochrane, john, discount rates, 2011, journal of finance,66,10471108. Asset pricing, professor doron avramov, finance department, hebrew university of jerusalem, israel course materials the econometrics of financial markets, by john y. In revising asset pricing and the online versions, i have moved entirely to continuous time rather than lognormal approximations. Cochrane and lars peter hansen university of chicago, department of economics and nber asset pricing explorations for macroeconomics 1. This is one place to turn if those are confusing, and hence just an optional resource. Princeton university press cochrane j 2001 asset pricing. Princeton university press cochrane j 2001 asset pricing princeton university from fnce 934 at university of pennsylvania. Graduate school of business university of chicago 1101 e.
Cochrane traces the pricing of all assets back to a single ideaprice equals expected discounted payoffthat captures the. Monthly price relative and market capitalisation data are obtained for each firm from the. Craig mackinlay, princeton university press, 1997 asset pricing, by john h. For debt, asset pricing is relatively simple, as cash flows to the owner are contractually fixed. You can find my full professional bio here, and a detailed cv here. Its much simpler that way, and continuous time is a standard part of a finance phds toolkit. An excellent survey of asset pricing theory from the modern my.
The name stochastic discount factor reflects the fact that the price of an asset can be computed by discounting the future cash flow by the stochastic factor and then taking the expectation. Introduction and overview asset market data are often ignored in evaluating macroeconomic mod. This definition is of fundamental importance in asset pricing. Cochrane has served as head of the national bureau of economic research asset pricing group, and was the editor of the journal of political economy from 1998 to 2003.
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