Understanding Risk and Return | Zendy

John Y. Campbell | Zendy

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Understanding Risk and Return

Author(s) -

John Y. Campbell

Publication year - 1996

Publication title -

journal of political economy

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 21.034

H-Index - 186

eISSN - 1537-534X

pISSN - 0022-3808

DOI - 10.1086/262026

Subject(s) - economics , stock (firearms) , stock market , financial economics , econometrics , mean reversion , risk–return spectrum , excess return , systematic risk , expected return , mechanical engineering , portfolio , paleontology , context (archaeology) , horse , engineering , biology

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 fore- casts of future stock returns (to capture intertemporal hedgiqg ef- fects), 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 pres- ence of human capital or stock market mean reversion, the coeffi- cient of relative risk aversion is much higher than the price of stock market risk.

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