NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Using Production Based Asset Pricing to Explain the Behavior of Stock Returns Over the Business Cycle

John H. Cochrane

NBER Working Paper No. 3212 (Also Reprint No. r1686)
Issued in December 1989
NBER Program(s):   EFG

The investment return is defined as the real return that results from marginally increasing investment at date r, and then reaping the extra output and decreasing investment at date t+1 to leave the production plan for other dates unchanged. This paper constructs investment returns from investment data and a production function, and compares investment returns to stock returns, in order to explain forecasts of stock returns by business cycle related variables, and to explain forecasts of future economic activity by stock returns.

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Document Object Identifier (DOI): 10.3386/w3212

Published: "Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations." From The Journal of Finance, Vol. 46, No. 1, pp. 209-2 37, (March 1991).

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