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 January 1992
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 inveatment 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.

*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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