John Y Campbell
Biographic Data
| ID | 3591696 |
|---|---|
| NAME | John Y Campbell |
| GIVEN NAMES | John Y |
| FAMILY NAME | Campbell |
| SIGNATURE | CAMPBELL J Y |
| AFFILIATIONS | Harvard University |
| VERIFIED | No |
| TOTAL WORKS | 20 |
| TOTAL CITATIONS | 111 |
| AUTHOR COUNT | 20 |
| EDITOR COUNT | 0 |
| FIRST PUBLICATION YEAR | 1987 |
| LATEST PUBLICATION YEAR | 2019 |
| H-INDEX | 5 |
Macroeconomic Drivers of Bond and Equity Risks
Our new model of consumption-based habit formation preferences generates loglinear, homoscedastic macroeconomic dynamics and time-varying risk premia on bonds and stocks. Consumers' first-order condition for the real risk-free interest rate takes the form of an exactly loglinear consumption Euler equation, commonly assumed in New Keynesian models. Estimating the model separately for 1979-2001 and 2001-2011 explains why the exposure of US Treasury…
Emerging Trends: Asset Pricing
The modern field of asset pricing is organized around the concept of the stochastic discount factor. This essay uses this framework to discuss the literature on predictability of asset returns in the short and long run, the influence of irrational investor expectations on asset prices, and the cross‐section of stock returns. Future progress will require microeconomic data on investor actions and ideally survey evidence on their risk preferences a…
The Fragile Benefits of Endowment Destruction
The benefits of endowment destruction documented by Ljungqvist and Uhlig (2015), and the related possibility that consumption can lower habits, are fragile. Both issues result from a particular way of discretely approximating the underlying continuous-time model or of adapting it to jumps. Other ways of calculating the discrete-time approximation or extending the model to jumps easily overturn the results, while making no difference to the model'…
Forced Sales and House Prices
This paper uses data on all house transactions in Massachusetts over the last 20 years to show that houses sold after foreclosure, or close in time to the death or bankruptcy of a seller, are sold at lower prices than other houses. Foreclosure discounts are on average at 27 percent of the value of a house. Moreover, foreclosures that take place within small local geographies of a house lower the price at which it is sold. Our preferred estimate i…
Consumer Financial Protection
The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies-of mortgage markets, payday lending, a…
The Squam Lake Report: Fixing the Financial System
A nonpartisan plan of action for fixing the global economy from fifteen of the world's leading economists In the fall of 2008, fifteen of the world's leading economists—representing the broadest spectrum of economic opinion—gathered at New Hampshire's Squam Lake. Their goal: the mapping of a long-term plan for financial regulation reform. The Squam Lake Report distills the wealth of insights from the ongoing collaboration that began at these meet…
Squam Lake Report: Fixing the Financial System
How do house prices affect consumption? Evidence from micro data
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
This paper investigates the efficiency of household investment decisions using comprehensive disaggregated Swedish data. We consider two main sources of inefficiency: underdiversification ("down") and nonparticipation in risky asset markets ("out"). While a few households are very poorly diversified, most Swedish households outperform the Sharpe ratio of their domestic stock index through international diversification. Financially sophisticated h…
Foreign currency for long‐term investors
Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long‐term investors. Domestic bills are risky for long‐term investors, because real interest rates vary over time and bills must be rolled over at unc…
A Comment on James M. Poterba's ‘Demographic Structure and Asset Returns’
November 01 2001 A Comment on James M. Poterba's ‘Demographic Structure and Asset Returns’ John Y. Campbell John Y. Campbell Harvard University Search for other works by this author on: This Site Google Scholar Author and Article Information John Y. Campbell Harvard University Received: June 12 2001 Accepted: June 12 2001 Online ISSN: 1530-9142 Print ISSN: 0034-6535 © 2001 President and Fellows of Harvard College and the Massachusetts Institute o…
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
We present a consumption‐based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long‐horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. The model captures much of the history of stock prices from consumption data. It explains the short‐and long‐run equity premium puzzles despite a low and constant risk‐free rat…
The Econometrics of Financial Markets
Understanding Risk and Return
This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns but…
Some Lessons from the Yield Curve
This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectation hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall, which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in mo…
A Variance Decomposition for Stock Returns
This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components. In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to…
Permanent Income, Current Income, and Consumption
This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily exp…
The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors
A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for U. S. time series 1871-1986: versi…
Are Output Fluctuations Transitory?
According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, five or ten years. Our examination of quarterly postwar …
Cointegration and Tests of Present Value Models
Application of some advances in econometrics (in the theory of cointegrated vector autoregressive models) enables us to deal effectively with two problems in rational-expectations, present-valu e models: nonstationarity of time series and incomplete data on infor mation of market participants. With U.S. data, the authors find some relatively encouraging new results for the rational-expectations theo ry of the term structure and some puzzling resu…
Cointegration and Tests of Present Value Models
Application of some advances in econometrics (in the theory of cointegrated vector autoregressive models) enables us to deal effectively with two problems in rational-expectations, present-valu e models: nonstationarity of time series and incomplete data on infor mation of market participants. With U.S. data, the authors find some relatively encouraging new results for the rational-expectations theo ry of the term structure and some puzzling resu…
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
We present a consumption‐based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long‐horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. The model captures much of the history of stock prices from consumption data. It explains the short‐and long‐run equity premium puzzles despite a low and constant risk‐free rat…
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
This paper investigates the efficiency of household investment decisions using comprehensive disaggregated Swedish data. We consider two main sources of inefficiency: underdiversification ("down") and nonparticipation in risky asset markets ("out"). While a few households are very poorly diversified, most Swedish households outperform the Sharpe ratio of their domestic stock index through international diversification. Financially sophisticated h…
Understanding Risk and Return
This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns but…
Consumer Financial Protection
The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies-of mortgage markets, payday lending, a…
A Variance Decomposition for Stock Returns
This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components. In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to…
Some Lessons from the Yield Curve
This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectation hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall, which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in mo…
Foreign currency for long‐term investors
Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long‐term investors. Domestic bills are risky for long‐term investors, because real interest rates vary over time and bills must be rolled over at unc…
Are Output Fluctuations Transitory?
According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, five or ten years. Our examination of quarterly postwar …
Cointegration and Tests of Present Value Models
Application of some advances in econometrics (in the theory of cointegrated vector autoregressive models) enables us to deal effectively with two problems in rational-expectations, present-valu e models: nonstationarity of time series and incomplete data on infor mation of market participants. With U.S. data, the authors find some relatively encouraging new results for the rational-expectations theo ry of the term structure and some puzzling resu…
The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors
A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for U. S. time series 1871-1986: versi…
Permanent Income, Current Income, and Consumption
This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily exp…
A Variance Decomposition for Stock Returns
This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components. In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to…
Some Lessons from the Yield Curve
This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectation hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall, which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in mo…
Understanding Risk and Return
This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns but…
The Econometrics of Financial Markets
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
We present a consumption‐based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long‐horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. The model captures much of the history of stock prices from consumption data. It explains the short‐and long‐run equity premium puzzles despite a low and constant risk‐free rat…
A Comment on James M. Poterba's ‘Demographic Structure and Asset Returns’
November 01 2001 A Comment on James M. Poterba's ‘Demographic Structure and Asset Returns’ John Y. Campbell John Y. Campbell Harvard University Search for other works by this author on: This Site Google Scholar Author and Article Information John Y. Campbell Harvard University Received: June 12 2001 Accepted: June 12 2001 Online ISSN: 1530-9142 Print ISSN: 0034-6535 © 2001 President and Fellows of Harvard College and the Massachusetts Institute o…
Foreign currency for long‐term investors
Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long‐term investors. Domestic bills are risky for long‐term investors, because real interest rates vary over time and bills must be rolled over at unc…
How do house prices affect consumption? Evidence from micro data
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
This paper investigates the efficiency of household investment decisions using comprehensive disaggregated Swedish data. We consider two main sources of inefficiency: underdiversification ("down") and nonparticipation in risky asset markets ("out"). While a few households are very poorly diversified, most Swedish households outperform the Sharpe ratio of their domestic stock index through international diversification. Financially sophisticated h…
The Squam Lake Report: Fixing the Financial System
A nonpartisan plan of action for fixing the global economy from fifteen of the world's leading economists In the fall of 2008, fifteen of the world's leading economists—representing the broadest spectrum of economic opinion—gathered at New Hampshire's Squam Lake. Their goal: the mapping of a long-term plan for financial regulation reform. The Squam Lake Report distills the wealth of insights from the ongoing collaboration that began at these meet…
Squam Lake Report: Fixing the Financial System
Forced Sales and House Prices
This paper uses data on all house transactions in Massachusetts over the last 20 years to show that houses sold after foreclosure, or close in time to the death or bankruptcy of a seller, are sold at lower prices than other houses. Foreclosure discounts are on average at 27 percent of the value of a house. Moreover, foreclosures that take place within small local geographies of a house lower the price at which it is sold. Our preferred estimate i…
Consumer Financial Protection
The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies-of mortgage markets, payday lending, a…
Emerging Trends: Asset Pricing
The modern field of asset pricing is organized around the concept of the stochastic discount factor. This essay uses this framework to discuss the literature on predictability of asset returns in the short and long run, the influence of irrational investor expectations on asset prices, and the cross‐section of stock returns. Future progress will require microeconomic data on investor actions and ideally survey evidence on their risk preferences a…
The Fragile Benefits of Endowment Destruction
The benefits of endowment destruction documented by Ljungqvist and Uhlig (2015), and the related possibility that consumption can lower habits, are fragile. Both issues result from a particular way of discretely approximating the underlying continuous-time model or of adapting it to jumps. Other ways of calculating the discrete-time approximation or extending the model to jumps easily overturn the results, while making no difference to the model'…
Macroeconomic Drivers of Bond and Equity Risks
Our new model of consumption-based habit formation preferences generates loglinear, homoscedastic macroeconomic dynamics and time-varying risk premia on bonds and stocks. Consumers' first-order condition for the real risk-free interest rate takes the form of an exactly loglinear consumption Euler equation, commonly assumed in New Keynesian models. Estimating the model separately for 1979-2001 and 2001-2011 explains why the exposure of US Treasury…
Economics (17 works) · Financial economics (10 works) · Financial Markets and Investment Strategies (10 works) · Monetary economics (10 works) · Housing Market and Economics (9 works) · Econometrics (8 works) · Monetary Policy and Economic Impact (8 works) · Economic theories and models (7 works) · Finance (7 works) · Business (5 works)