TY - JOUR
T1 - Economic activity of firms and asset prices
AU - Kogan, Leonid
AU - Papanikolaou, Dimitris
PY - 2012/10
Y1 - 2012/10
N2 - 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.
AB - 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.
KW - asset pricing
KW - firm characteristics
KW - general equilibrium
KW - investment
KW - stock returns
UR - http://www.scopus.com/inward/record.url?scp=84878558263&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84878558263&partnerID=8YFLogxK
U2 - 10.1146/annurev-financial-110311-101731
DO - 10.1146/annurev-financial-110311-101731
M3 - Review article
AN - SCOPUS:84878558263
VL - 4
SP - 361
EP - 384
JO - Annual Review of Financial Economics
JF - Annual Review of Financial Economics
SN - 1941-1367
ER -