John Campbell (),
Stefano Giglio () and
Scholarly Articles from Harvard University Department of Economics
We show that the stock market downturns of 2000â€“2002 and 2007â€“2009 have very different proximate causes. The early 2000s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000s saw a decrease in rational expectations of future profits. We reach these conclusions by using a VAR model of aggregate stock returns and valuations, estimated both without restrictions and imposing the cross-sectional restrictions of the intertemporal capital asset pricing model (ICAPM). Our findings imply that the 2007â€“2009 downturn was particularly serious for rational long-term investors, whose losses were not offset by improving stock return forecasts as in the previous recession. (JEL G12, N22)
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Published in Review of Asset Pricing Studies
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Journal Article: Hard Times (2013)
Working Paper: Hard Times (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:12172786
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