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Hard times

Campbell, John Y., Giglio, Stefano and Polk, Christopher (2013) Hard times. The Review of Asset Pricing Studies, 3 (1). pp. 95-132. ISSN 2045-9920

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Abstract

We show that the stock market downturns of 2000–2002 and 2007–2009 have very different proximate causes. The early 2000s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000s saw a decrease in rational expectations of future profits. We reach these conclusions by using a VAR model of aggregate stock returns and valuations, estimated both without restrictions and imposing the cross-sectional restrictions of the intertemporal capital asset pricing model (ICAPM). Our findings imply that the 2007–2009 downturn was particularly serious for rational long-term investors, whose losses were not offset by improving stock return forecasts as in the previous recession.

Item Type: Article
Official URL: http://raps.oxfordjournals.org/
Additional Information: © 2013 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S.; Canada: 1913-
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 15 Feb 2013 13:34
URL: http://eprints.lse.ac.uk/37403/

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