Abstract

http://ssrn.com/abstract=1787000
 
 

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Hard Times


John Y. Campbell


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Stefano Giglio


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Christopher Polk


London School of Economics

December 2011

AFA 2012 Chicago Meetings Paper

Abstract:     
We show that the stock market downturns of 2000-2002 and 2007-2009 have very different proximate causes. The early 2000’s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000’s saw a decrease in rational expectations of future profits. We reach these conclusions using a VAR model of aggregate stock returns and valuations, estimated both freely and imposing the cross-sectional restrictions of the ICAPM. Our findings imply that the 2007-2009 downturn was particularly serious for rational long-term investors, whose losses were not offset by improving stock return forecasts as in the previous recession.

Number of Pages in PDF File: 46

JEL Classification: G12, N22

working papers series





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Date posted: March 20, 2011 ; Last revised: December 24, 2011

Suggested Citation

Campbell, John Y. and Giglio, Stefano and Polk, Christopher, Hard Times (December 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1787000 or http://dx.doi.org/10.2139/ssrn.1787000

Contact Information

John Y. Campbell (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)
HOME PAGE: http://scholar.harvard.edu/campbell
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stefano Giglio
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Christopher Polk
London School of Economics ( email )
United Kingdom
HOME PAGE: http://personal.lse.ac.uk/polk/
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