Asset Pricing at the Millennium


  • John Y. Campbell

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    • Department of Economics, Harvard University, Cambridge, Massachusetts, and NBER ( This paper is a survey of asset pricing presented at the 2000 annual meeting of the American Finance Association, Boston, Massachusetts. I am grateful for the insights and stimulation provided by my coauthors, students, and colleagues in the NBER Asset Pricing Program, without whom I could not even attempt such a survey. Franklin Allen, Nick Barberis, Geert Bekaert, Lewis Chan, John Cochrane, David Feldman, Will Goetzmann, Martin Lettau, Sydney Ludvigson, Greg Mankiw, Robert Shiller, Andrei Shleifer, Pietro Veronesi, Luis Viceira, and Tuomo Vuolteenaho gave helpful comments on the first draft. I acknowledge the financial support of the National Science Foundation.


This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work and on the trade-off between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF) that prices all assets in the economy. The behavior of the term structure of real interest rates restricts the conditional mean of the SDF, whereas patterns of risk premia restrict its conditional volatility and factor structure. Stylized facts about interest rates, aggregate stock prices, and cross-sectional patterns in stock returns have stimulated new research on optimal portfolio choice, intertemporal equilibrium models, and behavioral finance.