Product Description

Every day, the financial markets bravely price trillions of dollars in such risky securities as stocks, bonds, options, futures, and derivatives. The systematic determination of their values - asset pricing - has developed dramatically in the last few years due to advances in financial theory and econometrics. In one of the most highly anticipated books in financial economics. John Cochrane unifies and brings this science up to date for the benefit of advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea - price equals expected discounted payoff - that captures the macroeconomic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class. Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model - consumption-based, CAPM, multifactor, term structure, and option pricing - is derived as a different specification of the discount factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted pay-off. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook for advanced graduate students, this book condenses and advances recent scholarship in financial economics.

Product Details

• Amazon Sales Rank: #741730 in Books
• Published on: 2001-04-01
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 524 pages

Review
"This is an impressive treatise of very high quality. It is a serious scholarly monograph, of interest to those who are working to advance financial theory, and it can also serve as a textbook in an advanced finance course. It is thoughtful, inductive, and comprehensive." - Robert J. Shiller, author of Irrational Exuberance "This is a beautiful book that uses the elegant simplicity of the stochastic discount factor to present a general theory of the pricing of stocks, bonds, and derivatives and a practical approach to estimating particular models derived from the general theory. It will help experts in the field to consolidare their knowledge and beginners to appreciate the unity of asset pricing theory. Cochrane uses his mastery of the subject to present it in a clear and compelling manner that is easily accessible." - Michael Brennan, Anderson School of Management, University of California, Los Angeles"

About the Author
John H. Cochrane is Sigmund E. Edelstone Professor of Finance at the University of Chicago Graduate School of Business and the author of many academic articles in financial economics. His work with John Campbell on investor behavior recently received the TIAA-CREF Paul A. Samuelson Certificate of Excellence. He is an editor of the Journal of Political Economy.

Customer Reviews

Nice book, shame it is written backwards!
The author presents a survey of the asset pricing literature from the 'unifying' stochastic discount factor framework. This is a refreshing attempt to unify the often ad-hoc approaches to asset pricing theory found in the literature. However, the book is structured in a manner that requires the reader to be already fully conversant in the literature. If they are not, many mysterious results are introduced in an apparently random nature, which only fit into the jigsaw puzzle some 50 pages later. I hope the second edition manages to address this problem by altering the structure. Otherwise, a pretty good stab at cleaning up the 'mess' left by the earlier asset pricing literature.