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Financial Markets and the Real Economy

  • Cochrane, John H.

The author surveys work on the intersection between macroeconomics and finance. The challenge is to find the right measure of "bad times," rises in the marginal value of wealth, so that we can understand high average returns or low prices as compensation for assets' tendency to pay off poorly in "bad times." The author surveys the literature, covering the time-series and cross-sectional facts, the equity premium, consumption-based models, general equilibrium models, and labor income/idiosyncratic risk approaches.

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File URL: http://dx.doi.org/10.1561/0500000001
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Article provided by now publishers in its journal Foundations and Trends(R) in Finance.

Volume (Year): 1 (2005)
Issue (Month): 1 (July)
Pages: 1-101

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Handle: RePEc:now:fntfin:0500000001
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