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Understanding Risk and Return

John Y. Campbell^1,2

¹ National Bureau of Economic Research · ² Harvard University

This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns but, in the presence of human capital or stock market mean reversion, the coefficient of relative risk aversion is much higher than the price of stock market risk. Copyright 1996 by University of Chicago Press.

DOI

10.1086/262026

Volume

104 (2)

Pages

298-345

Language

en

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BibTeX

Sources

crossref openalex