Financial Decisions and Markets: A Course in Asset Pricing. John Y. Campbell. Princeton University Press Princeton and Oxford

Transcription

1 Financial Decisions and Markets: A Course in Asset Pricing John Y. Campbell Princeton University Press Princeton and Oxford

2 Figures Tables Preface xiii xv xvii Part I Stade Portfolio Choice and Asset Pricing 1 Choice under Uncertainty Expected Utility Sketch of von Neumann-Morgenstern Theory Risk Aversion Jensen's Inequality and Risk Aversion Comparing Risk Aversion The Arrow-Pratt Approximation Tractable Utility Functions Critiques of Expected Utility Theory Allais Paradox Rabin Critique First-Order Risk Aversion and Prospect Theory Comparing Risks Comparing Risks with the Same Mean Comparing Risks with Different Means The Principle of Diversification Solution and Further Problems 20 2 Stade Portfolio Choice Choosing Risk Exposure The Principle of Participation A Small Reward for Risk The CARA-Normal Case The CRRA-Lognormal Case The Growth-Optimal Portfolio Combining Risky Assets Two Risky Assets 31 vii

3 viii One Risky and One Safe Asset IV Risky Assets The Global Minimum-Variance Portfolio The Mutual Fund Theorem One Riskless Asset and N Risky Assets Practical Difficulties Solutions and Further Problems 43 3 Static Equilibrium Asset Pricing The Capital Asset Pricing Model (CAPM) Asset Pricing Implications of the Sharpe-Lintner CAPM The Black CAPM Beta Pricing and Portfolio Choice The Black-Litterman Model Arbitrage Pricing and Multifactor Models Arbitrage Pricing in a Single-Factor Model Multifactor Models The Conditional CAPM as a Multifactor Model Empirical Evidence Test Methodology The CAPM and the Cross-Section of Stock Returns Alternative Responses to the Evidence Solution and Further Problems 77 4 The Stochastic Discount Factor Complete Markets The SDF in a Complete Market The Riskless Asset and Risk-Neutral Probabilities Utility Maximization and the SDF The Growth-Optimal Portfolio and the SDF Solving Portfolio Choice Problems Perfect Risksharing Existence of a Representative Agent Heterogeneous Beliefs Incomplete Markets Constructing an SDF in the Payoff Space Existence of a Positive SDF Properties of the SDF Risk Premia and the SDF Volatility Bounds Entropy Bound Factor Structure Time-Series Properties Generalized Method of Moments Asymptotic Theory Important GMM Estimators Traditional Tests in the GMM Framework GMM in Practice 109

4 ix 4.5 Limits of Arbitrage Solutions and Further Problems 114 Part II Intertemporal Portfolio Choice and Asset Pricing 5 Present Value Relations Market Efficiency Tests of Autocorrelation in Stock Retums Empirical Evidence on Autocorrelation in Stock Returns Present Value Models with Constant Discount Rates Dividend-Based Models Earnings-Based Models Rational Bubbles Present Value Models with Time-Varying Discount Rates The Campbell-Shiller Approximation Short-and Long-Term Return Predictability Interpreting US Stock Market History VAR Analysis of Returns Predictive Return Regressions Stambaugh Bias Recent Responses Using Financial Theory Other Predictors Drifting Steady-State Models Volatility and Valuation Drifting Steady-State Valuation Model Inflation and the Fed Model Present Value Logic and the Cross-Section of Stock Returns Quality as a Risk Factor Cross-Sectional Measures of the Equity Premium Solution and Further Problems Consumption-Based Asset Pricing Lognormal Consumption with Power Utility Three Puzzles Responses to the Puzzles Beyond Lognormality Time-Varying Disaster Risk Epstein-Zin Preferences Deriving the SDF for Epstein-Zin Preferences Long-Run Risk Models Predictable Consumption Growth Heteroskedastic Consumption Empirical Specihcation Ambiguity Aversion Habit Formation A Ratio Model of Habit The Campbell-Cochrane Model Alternative Models of Time-Varying Risk Aversion 198

5 x 6.8 Durable Goods Solutions and Further Problems Production-Based Asset Pricing Physical Investment with Adjustment Costs A ^-Theory Model of Investment Investment Returns Explaining Firms'Betas General Equilibrium with Production Long-Run Consumption Risk in General Equilibrium Variable Labor Supply Habit Formation in General Equilibrium Marginal Rate of Transformation and the SDF Solution and Further Problem Fixed-Income Securities Basic Concepts Yields and Holding-Period Returns Forward Rates Coupon Bonds The Expectations Hypothesis of the Tema Structure Restrictions on Interest Rate Dynamics Empirical Evidence Affine Tema Structure Models Completely Affine Homoskedastic Single-Factor Model Completely Affine Heteroskedastic Single-Factor Model Essentially Affine Models Strong Restrictions and Hidden Factors Bond Pricing and the Dynamics of Consumption Growth and Inflation Real Bonds and Consumption Dynamics Permanent and Transitory Shocks to Marginal Utility Real Bonds, Nominal Bonds, and Inflation Interest Rates and Exchange Rates Interest Parity and the Carry Trade The Domestic and Foreign SDF Solution and Further Problems Intertemporal Risk Myopie Portfolio Choice Intertemporal Hedging A Simple Example Hedging Interest Rates Hedging Risk Premia Alternative Approaches The Intertemporal CAPM A Two-Beta Model Hedging Volatility: A Three-Beta Model The Term Structure of Risky Assets Stylized Facts Asset Pricing Theory and the Risky Term Structure 291

6 xi 9.5 Learning Solutions and Further Problems 299 Part III Heterogeneous Investors 10 Household Finance Labor Income and Portfolio Choice Static Portfolio Choice Models Multiperiod Portfolio Choice Models Labor Income and Asset Pricing Limited Participation Wealth, Participation, and Risktaking Asset Pricing Implications of Limited Participation Underdiversification Empirical Evidence Effects on the Wealth Distribution Asset Pricing Implications of Underdiversification Responses to Changing Market Conditions Policy Responses Solutions and Further Problems Risksharing and Speculation Incomplete Markets Asset Pricing with Uninsurable Income Risk Market Design with Incomplete Markets General Equilibrium with Imperfect Risksharing Private Information Default Punishment by Exclusion Punishment by Seizure of Collateral Heterogeneous Beliefs Noise Traders The Harrison-Kreps Model Endogenou Margin Requirements Solution and Further Problems Asymmetrie Information and Liquidity Rational Expectations Equilibrium Fully Revealing Equilibrium Partially Revealing Equilibrium News, Trading Volume, and Returns Equilibrium with Costly Information Higher-Order Expectations Market Microstructure Information and the Bid-Ask Spread Information and Market Impact Diminishing Returns in Active Asset Management Liquidity and Asset Pricing Constant Trading Costs and Asset Prices Random Trading Costs and Asset Prices 395

7 xii Margins and Asset Prices Margins and Trading Costs Solution and Further Problems 400 References 405 Index 435