Figures Tables Preface Part I Static Portfolio Choice and Asset Pricing 1 Choice under Uncertainty 1.1 Expected Utility 1.1.1 Sketch of von Neumann-Morgenstern Theory 1.2 Risk Aversion 1.2.1 Jensen''s Inequality and Risk Aversion 1.2.
2 Comparing Risk Aversion 1.2.3 The Arrow-Pratt Approximation 1.3 Tractable Utility Functions 1.4 Critiques of Expected Utility Theory 1.4.1 Allais Paradox 1.4.
2 Rabin Critique 1.4.3 First-Order Risk Aversion and Prospect Theory 1.5 Comparing Risks 1.5.1 Comparing Risks with the Same Mean 1.5.2 Comparing Risks with Different Means 1.
5.3 The Principle of Diversification 1.6 Solution and Further Problems 2 Static Portfolio Choice 2.1 Choosing Risk Exposure 2.1.1 The Principle of Participation 2.1.2 A Small Reward for Risk 2.
1.3 The CARA-Normal Case 2.1.4 The CRRA-Lognormal Case 2.1.5 The Growth-Optimal Portfolio 2.2 Combining Risky Assets 2.2.
1 Two Risky Assets 2.2.2 One Risky and One Safe Asset 2.2.3 N Risky Assets 2.2.4 The Global Minimum-Variance Portfolio 2.2.
5 The Mutual Fund Theorem 2.2.6 One Riskless Asset and N Risky Assets 2.2.7 Practical Difficulties 2.3 Solutions and Further Problems 3 Static Equilibrium Asset Pricing 3.1 The Capital Asset Pricing Model (CAPM) 3.1.
1 Asset Pricing Implications of the Sharpe-Lintner CAPM 3.1.2 The Black CAPM 3.1.3 Beta Pricing and Portfolio Choice 3.1.4 The Black-Litterman Model 3.2 Arbitrage Pricing and Multifactor Models 3.
2.1 Arbitrage Pricing in a Single-Factor Model 3.2.2 Multifactor Models 3.2.3 The Conditional CAPM as a Multifactor Model 3.3 Empirical Evidence 3.3.
1 Test Methodology 3.3.2 The CAPM and the Cross-Section of Stock Returns 3.3.3 Alternative Responses to the Evidence 3.4 Solution and Further Problems 4 The Stochastic Discount Factor 4.1 Complete Markets 4.1.
1 The SDF in a Complete Market 4.1.2 The Riskless Asset and Risk-Neutral Probabilities 4.1.3 Utility Maximization and the SDF 4.1.4 The Growth-Optimal Portfolio and the SDF 4.1.
5 Solving Portfolio Choice Problems 4.1.6 Perfect Risksharing 4.1.7 Existence of a Representative Agent 4.1.8 Heterogeneous Beliefs 4.2 Incomplete Markets 4.
2.1 Constructing an SDF in the Payoff Space 4.2.2 Existence of a Positive SDF 4.3 Properties of the SDF 4.3.1 Risk Premia and the SDF 4.3.
2 Volatility Bounds 4.3.3 Entropy Bound 4.3.4 Factor Structure 4.3.5 Time-Series Properties 4.4 Generalized Method of Moments 4.
4.1 Asymptotic Theory 4.4.2 Important GMM Estimators 4.4.3 Traditional Tests in the GMM Framework 4.4.4 GMM in Practice 4.
5 Limits of Arbitrage 4.6 Solutions and Further Problems Part II Intertemporal Portfolio Choice and Asset Pricing 5 Present Value Relations 5.1 Market Efficiency 5.1.1 Tests of Autocorrelation in Stock Returns 5.1.2 Empirical Evidence on Autocorrelation in Stock Returns 5.2 Present Value Models with Constant Discount Rates 5.
2.1 Dividend-Based Models 5.2.2 Earnings-Based Models 5.2.3 Rational Bubbles 5.3 Present Value Models with Time-Varying Discount Rates 5.3.
1 The Campbell-Shiller Approximation 5.3.2 Short- and Long-Term Return Predictability 5.3.3 Interpreting US Stock Market History 5.3.4 VAR Analysis of Returns 5.4 Predictive Return Regressions 5.
4.1 Stambaugh Bias 5.4.2 Recent Responses Using Financial Theory 5.4.3 Other Predictors 5.5 Drifting Steady-State Models 5.5.
1 Volatility and Valuation 5.5.2 Drifting Steady-State Valuation Model 5.5.3 Inflation and the Fed Model 5.6 Present Value Logic and the Cross-Section of Stock Returns 5.6.1 Quality as a Risk Factor 5.
6.2 Cross-Sectional Measures of the Equity Premium 5.7 Solution and Further Problems 6 Consumption-Based Asset Pricing 6.1 Lognormal Consumption with Power Utility 6.2 Three Puzzles 6.2.1 Responses to the Puzzles 6.3 Beyond Lognormality 6.
3.1 Time-Varying Disaster Risk 6.4 Epstein-Zin Preferences 6.4.1 Deriving the SDF for Epstein-Zin Preferences 6.5 Long-Run Risk Models 6.5.1 Predictable Consumption Growth 6.
5.2 Heteroskedastic Consumption 6.5.3 Empirical Specification 6.6 Ambiguity Aversion 6.7 Habit Formation 6.7.1 A Ratio Model of Habit 6.
7.2 The Campbell-Cochrane Model 6.7.3 Alternative Models of Time-Varying Risk Aversion 6.8 Durable Goods 6.9 Solutions and Further Problems 7 Production-Based Asset Pricing 7.1 Physical Investment with Adjustment Costs 7.1.
1 A q -Theory Model of Investment 7.1.2 Investment Returns 7.1.3 Explaining Firms'' Betas 7.2 General Equilibrium with Production 7.2.1 Long-Run Consumption Risk in General Equilibrium 7.
2.2 Variable Labor Supply 7.2.3 Habit Formation in General Equilibrium 7.3 Marginal Rate of Transformation and the SDF 7.4 Solution and Further Problem 8 Fixed-Income Securities 8.1 Basic Concepts 8.1.
1 Yields and Holding-Period Returns 8.1.2 Forward Rates 8.1.3 Coupon Bonds 8.2 The Expectations Hypothesis of the Term Structure 8.2.1 Restrictions on Interest Rate Dynamics 8.
2.2 Empirical Evidence 8.3 Affine Term Structure Models 8.3.1 Completely Affine Homoskedastic Single-Factor Model 8.3.2 Completely Affine Heteroskedastic Single-Factor Model 8.3.
3 Essentially Affine Models 8.3.4 Strong Restrictions and Hidden Factors 8.4 Bond Pricing and the Dynamics of Consumption Growth and Inflation 8.4.1 Real Bonds and Consumption Dynamics 8.4.2 Permanent and Transitory Shocks to Marginal Utility 8.
4.3 Real Bonds, Nominal Bonds, and Inflation 8.5 Interest Rates and Exchange Rates 8.5.1 Interest Parity and the Carry Trade 8.5.2 The Domestic and Foreign SDF 8.6 Solution and Further Problems 9 Intertemporal Risk 9.
1 Myopic Portfolio Choice 9.2 Intertemporal Hedging 9.2.1 A Simple Example 9.2.2 Hedging Interest Rates 9.2.3 Hedging Risk Premia 9.
2.4 Alternative Approaches 9.3 The Intertemporal CAPM 9.3.1 A Two-Beta Model 9.3.2 Hedging Volatility: A Three-Beta Model 9.4 The Term Structure of Risky Assets 9.
4.1 Stylized Facts 9.4.2 Asset Pricing Theory and the Risky Term Structure 9.5 Learning 9.6 Solutions and Further Problems Part III Heterogeneous Investors 10 Household Finance 10.1 Labor Income and Portfolio Choice 10.1.
1 Static Portfolio Choice Models 10.1.2 Multiperiod Portfolio Choice Models 10.1.3 Labor Income and Asset Pricing 10.2 Limited Participation 10.2.1 Wealth, Participation, and Risktaking 10.
2.2 Asset Pricing Implications of Limited Participation 10.3 Underdiversification 10.3.1 Empirical Evidence 10.3.2 Effects on the Wealth Distribution 10.3.
3 Asset Pricing Implications of Underdiversification 10.4 Responses to Changing Market Conditions 10.5 Policy Responses 10.6 Solutions and Further Problems 11 Risksharing and Speculation 11.1 Incomplete Markets 11.1.1 Asset Pricing with Uninsurable Income Risk 11.1.
2 Market Design with Incomplete Markets 11.1.3 General Equilibrium with Imperfect Risksharing 11.2 Private Information 11.3 Default 11.3.1 Punishment by Exclusion 11.3.
2 Punishment by Seizure of Collateral 11.4 Heterogeneous Beliefs 11.4.1 Noise Traders 11.4.2 The Harrison-Kreps Model 11.4.3 Endogenou Margin Requirements 11.
5 Solution and Further Problems 12 Asymmetric Information and Liquidity 12.1 Rational Expectations Equilibrium 12.1.1 Fully Revealing Equilibrium 12.1.2 Partially Revealing Equilibrium 12.1.3 News, Trading Volume, and Returns 12.
1.4 Equilibrium with Costly Information 12.1.5 Higher-Order Expectations 12.2 Market Microstructure 12.2.1 Information and the Bid-Ask Spread 12.2.
2 Information and Market Impact 12.2.3 Diminishing Returns in Active Asset Management 12.3 Liquidity and Asset Pricing 1.