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Understanding Risk and Return

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  • Campbell, John

Abstract

This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns; but in the presence of human capital or stock market mean reversion, the coefficient of relative risk aversion is much higher than the price of stock market risk.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3153293.

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Date of creation: 1996
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Publication status: Published in Journal of Political Economy
Handle: RePEc:hrv:faseco:3153293

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