Economic activity of firms and asset prices

Leonid Kogan, Dimitris Papanikolaou

Research output: Contribution to journalReview article

9 Citations (Scopus)

Abstract

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
Volume4
DOIs
StatePublished - Oct 1 2012

Fingerprint

Asset prices
Economic activity
Stock returns
Risk premia
Asset returns
Financial markets
Cash flow
Comovement
Systematic risk
Macroeconomic fluctuations
Macroeconomics
Economics

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

@article{500abf593eac44f7812374da652b5d31,
title = "Economic activity of firms and asset prices",
abstract = "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.",
keywords = "asset pricing, firm characteristics, general equilibrium, investment, stock returns",
author = "Leonid Kogan and Dimitris Papanikolaou",
year = "2012",
month = "10",
day = "1",
doi = "10.1146/annurev-financial-110311-101731",
language = "English (US)",
volume = "4",
pages = "361--384",
journal = "Annual Review of Financial Economics",
issn = "1941-1367",
publisher = "Annual Reviews Inc.",

}

Economic activity of firms and asset prices. / Kogan, Leonid; Papanikolaou, Dimitris.

In: Annual Review of Financial Economics, Vol. 4, 01.10.2012, p. 361-384.

Research output: Contribution to journalReview article

TY - JOUR

T1 - Economic activity of firms and asset prices

AU - Kogan, Leonid

AU - Papanikolaou, Dimitris

PY - 2012/10/1

Y1 - 2012/10/1

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 -