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Hard times

Campbell, John Y., Giglio, Stefano and Polk, Christopher (2011) Hard times. AFA 2012 Chicago Meetings Paper. SSRN.

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We show that the stock market downturns of 2000-2002 and 2007-2009 have very different proximate causes. The early 2000’s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000’s saw a decrease in rational expectations of future profits. We reach these conclusions using a VAR model of aggregate stock returns and valuations, estimated both freely and imposing the cross-sectional restrictions of the 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: Monograph (Working Paper)
Official URL:
Additional Information: © 2011 The authors
Divisions: Finance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: 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-
Date Deposited: 16 Apr 2012 11:09
Last Modified: 14 Jan 2021 01:15

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