Economic Activity of Firms and Asset Prices
AbstractIn this review we survey the recent research on the fundamental determinants of stock returns. These studies explore how firms' systematic risk and their investment and production decisions are jointly determined in equilibrium. Models with production provide insights into several types of empirical patterns, including (a) the correlations between firms' economic characteristics and their risk premia, (b) the comovement of stock returns among firms with similar characteristics, and (c) the joint dynamics of asset returns and macroeconomic quantities. Moreover, by explicitly relating firms' stock returns and cash flows to fundamental shocks, models with production connect the analysis of financial markets with the research on the origins of macroeconomic fluctuations.
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Bibliographic InfoArticle provided by Annual Reviews in its journal Annual Review of Financial Economics.
Volume (Year): 4 (2012)
Issue (Month): 1 (October)
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Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Philip Bond & Alex Edmans & Itay Goldstein, 2011.
"The Real Effects of Financial Markets,"
NBER Working Papers
17719, National Bureau of Economic Research, Inc.
- Leonid Kogan & Dimitris Papanikolaou, 2012. "A Theory of Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks," NBER Working Papers 17975, National Bureau of Economic Research, Inc.
- Leonid Kogan & Dimitris Papanikolaou & Noah Stoffman, 2013. "Technological Innovation: Winners and Losers," NBER Working Papers 18671, National Bureau of Economic Research, Inc.
- Andrew Y. Chen, 2013. "External Habit in a Production Economy," 2013 Papers pch1244, Job Market Papers.
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