Economic activity of firms and asset prices

Leonid Kogan, Dimitris Papanikolaou

Research output: Contribution to journalReview articlepeer-review

15 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)361-384
Number of pages24
JournalAnnual Review of Financial Economics
StatePublished - Oct 2012


  • asset pricing
  • firm characteristics
  • general equilibrium
  • investment
  • stock returns

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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