Department of Economics, University of Chicago. I received many helpful comments in the course of this research. In particular, I thank Andrew Abel, Phillip Braun, Ron Balvers, Robert Chirinko, Gene Fama, Campbell Harvey, Lars Hansen, Robert Hodrick, Bruce Lehmann, George McCandless, Ed Prescott, Gopalakrishnan Sharathchandra, René Stulz (the editor) and anonymous referees. This research was partially supported by National Science Foundation grant number SES 88–09912.
Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations
Article first published online: 30 APR 2012
1991 The American Finance Association
The Journal of Finance
Volume 46, Issue 1, pages 209–237, March 1991
How to Cite
COCHRANE, J. H. (1991), Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations. The Journal of Finance, 46: 209–237. doi: 10.1111/j.1540-6261.1991.tb03750.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper describes a production-based asset pricing model. It is analogous to the standard consumption-based model, but it uses producers and production functions in the place of consumers and utility functions. The model ties stock returns to investment returns (marginal rates of transformation) which are inferred from investment data via a production function. The production-based model is used to examine forecasts of stock returns by business-cycle related variables and the association of stock returns with subsequent economic activity.