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Type of bind: Hardcover
Dewey Decimal Number: 332.6
EAN num: 9780691121376
ISBN number: 0691121370
Label: Princeton University Press
Manufacturer: Princeton University Press
Quantity: 1
Page Count: 568
Printing Date: January 03, 2005
Publishing house: Princeton University Press
Sale Popularity Level: 142661
Studio: Princeton University Press
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Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic 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 discounted 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 payoff. 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, this book condenses and advances recent scholarship in financial economics.
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Rated by buyers 
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It's a very good introduction to both theoretical and empirical financial economics. Despite readers need to have a good background on macroeconomics and econometrics,after reading this book they will be able to understand the most recent articles by Cochrane, Campbell, Shiller and all the younger researchers who are doing theoretical and empirical research on the determinants of not only stocks prices but also for bonds, options and exchange rates. This book might not be useful for somebody who what to learn about the analysis and trading of financial instruments on a daily basis.
Rated by buyers 
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It's probably true that the very first book you study about a subject inevitably determines your approach to it afterwards. My very first book on asset pricing was Duffie's Dynamic Asset Pricing Theory (2nd ed), and it has perhaps forever biased my judgment. Given this caveat, I wanted to like this book. For econometricians, the stochastic discount approach is increasingly important, and Cochrane's articles are engaging and well written. But, no matter what the blurbs on the back cover of the book say, or what some Amazon reviewers claim, this is a flawed book. It's true that "the hurdles of asset pricing are really conceptual rather than mathematical" (last sentence in the book preface), but this is no excuse for being sloppy, and sloppiness in this book abounds. Assumptions are not clear; theorems are imprecisely stated. Continuous-time formulations pop up without explanation of the variables or of the motivation behind them. Expected-utility derivations are the main tool used by the author, but the connection between no-arbitrage, utility maximization and equilibrium are not clear, and one is led to think that the stochastic discount is unique to this line of reasoning. On the positive side, there are many interesting results and many intuitive explanations. My recommendation: i) read Duffie or Pliska first; ii) take the plunge and download Hansen & Richard's 1987 Econometrica paper (very dense); iii) read Cochrane, but reobtain all the results independently from what you have learned in in i) and ii).
Rated by buyers -
Upon recommendation by a friend of the author, I ordered this book through amazon. I read the entire book from cover to cover in a month. I am onto my second pass through the book.
Cochrane organizes pricing theories from CAPM to APT to derivative pricing, all of which I have learned through disparate sources, around a central theme: consumption based pricing theory. Then he goes on explaining the equivalence among these pricing theories, and indicate situations where these theories may best be used.
The author balances the theory with equal emphasis on empirical studies, from estimation methods to common pricing models, especially the Fama-French model. He also shares with us intuitive discussions of value factors, forecasting power of dividend/price ratios and the puzzling momentum factors.
What is especailly good about this book, I found, at least for myself, is how the author manages a casual style without losing rigour and focus. The author in 500+ pages review as well as explore vast amount of financial literature and present it to us in a clear and unified fashion. Another aspect I particularly like is that the author probably has students or people without finance ph.d.s in mind when he explains common but potentially confusing terminologies used in different segments of academic research.
Cochrane sketches out proofs for most of theorems and corollaries. Perhaps it is not the purpose of this book, and should not be required of it as such, that detail proofs be provided. Those can be found in references listed at the end of the book.
Overall I highly recommend this book to people who are interested in asset pricing theories as well as practice. Minimal advanced mathematics is sufficient, such as calculus and linear algebra.
Rated by buyers -
I agree with most reviewers who rate this book highly. In my opinion, the most outstanding quality of this book is the author's ability to make abstract materials very simple and intuitive without sacrificing the essential ideas of the subjects. The book is a perfect example of a good text book which is not intended to be written as a reference, although it easily has all the merits of being a good reference. (That said, to understand this book, readers need to have good mathematics and economics background to enjoy it.) I wish other books meant to be textbooks had this rare quality.
Rated by buyers -
I took a Finance Ph.D. - level Asset Pricing course that used this book along with other sources and I'm quite happy with it. In particular, I enjoyed Ch 21 "Equity Premium puzzle and Consumption-Based Models". Some Matlab code for Campbell-Cochrane model is still available on my website (click on my name above).
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