Economic Activity of Firms and Asset Prices
Author(s)
Kogan, Leonid; Papanikolaou, Dimitris
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In this review we survey the recent research on the fundamental determinants of stock returns. These studies explore how firms' systematic risk and their investment and production decisions are jointly determined in equilibrium. Models with production provide insights into several types of empirical patterns, including (a) the correlations between firms' economic characteristics and their risk premia, (b) the comovement of stock returns among firms with similar characteristics, and (c) the joint dynamics of asset returns and macroeconomic quantities. Moreover, by explicitly relating firms' stock returns and cash flows to fundamental shocks, models with production connect the analysis of financial markets with the research on the origins of macroeconomic fluctuations.
Date issued
2012-07Department
Sloan School of ManagementJournal
Annual Review of Financial Economics
Publisher
Annual Reviews
Citation
Kogan, Leonid, and Dimitris Papanikolaou. “Economic Activity of Firms and Asset Prices.” Annual Review of Financial Economics 4.1 (2012): 361–384. Web.
Version: Author's final manuscript
ISSN
1941-1367
1941-1375