TY  - JOUR
AU  - Campbell,John Y.
TI  - Asset Prices, Consumption, and the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6485
PY  - 1998
Y2  - March 1998
UR  - http://www.nber.org/papers/w6485
L1  - http://www.nber.org/papers/w6485.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu
AB  - This paper reviews the behavior of financial asset prices in relation to consumption.  The paper lists some important stylized facts that characterize US data, and relates them to recent developments in equilibrium asset pricing theory.  Data from other countries are examined to see which features of the US experience apply more generally.  The paper argues that to make sense of asset market behavior one needs a model in which the market price of risk is high, time-varying, and correlated with the state of the economy.  Models that have this feature, including models with habit-formation in utility, heterogeneous investors, and irrational expectations, are discussed.  The main focus is on stock returns and short-term real interest rates, but bond returns are also considered.
ER  -