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Consumption and the Stock Market: Interpreting International Experience

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  • John Y. Campbell

Abstract

This paper reviews the behavior of stock 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 stock market behavior one needs a model in which investors' risk aversion is both high and varying, such as the external habit-formation model of Campbell and Cochrane (1995).

Suggested Citation

  • John Y. Campbell, 1996. "Consumption and the Stock Market: Interpreting International Experience," NBER Working Papers 5610, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5610
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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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