76 Pages Posted: 6 Sep 2000
Date Written: May 2000
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.
JEL Classification: G12
Suggested Citation: Suggested Citation
Campbell, John Y., Asset Pricing At The Millennium (May 2000). Harvard Institute of Economic Research Paper No. 1897. Available at SSRN: https://ssrn.com/abstract=236584 or http://dx.doi.org/10.2139/ssrn.236584