It is spare, concise, as well as clearly written. How tin mail away I tell that of a 450 page book, amongst broad text as well as tiny margins? Well, it's the concise version of the Encyclopedia Britannica, breathtakingly comprehensive as well as upwardly to appointment inward its coverage of of import query topics.
The outset business office is a whirlwind tour of property pricing theory. Here, John adopts the traditional organisation -- expected utility, static portfolio choice, static CAPM as well as APT as equilibrium relations where render meets demand, as well as finally nosotros come across the discount factor as well as consumption-based pricing. I chose to become the other means around, as well as start amongst the basic property pricing equation \(p_t u'(c_t) = E_t [\beta u'(c_{t+1}) x_{t+1} ]\), next Bob Lucas' insight that property pricing is the same as inward an endowment economy, as well as filling out the CAPM as well as APT as well as hence forth as exceptional cases. I never fifty-fifty got to portfolio theory -- it's inward a draft chapter for the long-delayed adjacent version. I nevertheless call upwardly that's the correct organization, but almost people don't desire to learn it that way. John's to a greater extent than conventional organization, combined amongst clarity as well as concision, may live to a greater extent than what y'all want.
Even here, John's empirical sense of savor as well as contributions rings through Any textbook is inward many ways a summary of its authors' query journey, as well as John's journeying has gone far as well as wide. You watch a preview of the vogue on the sixth page of chapter 2 (p. 28) where y'all come across approximations for log returns, as well as the growth-optimal portfolio on the adjacent page. On calculating minimum-variance portfolios, on p. 37, y'all larn graph of time-varying render correlations from Campbell Lettau Milkier as well as Xu (2001), a provocative fact commonly ignored. After efficiently presenting the classic CAPM, nosotros larn (p. 51) an insightful application to Harvard's endowment, highlighting the difficulties of using these oft-repeated portfolio as well as pricing theories inward practice.
This majority is infused amongst upwardly to the infinitesimal empirical piece of employment as well as practical application fifty-fifty inward the almost basic theory sections. Starting on p. 61 John moves swiftly from the CAPM theory to empirical evidence, as well as implicitly, methodology. The adjacent sixteen pages encompass the measure regression examine approaches, swiftly present the testify for the value as well as size cross sections, a prissy handling of momentum, a proficient yet economical coverage of the major anomalies as well as hence a quick as well as digestible survey of reactions such as conditional capm, multifactor models, as well as behavioral finance. The coverage is comprehensive as well as upwardly to appointment without existence overwhelming.
Then the majority genuinely gets going. You would hold back Chapter five on introduce value models to live excellent, as well as it is, somehow spell also existence brief. It covers non but the basics such as Campbell Shiller introduce value model as well as VARs, but includes a useful department on "Interpreting US of America stock marketplace history" to convey equations alive, an first-class department on the econometrics of render forecasting, drifting steady state models, introduce value models inward the cross department as well as more. Somehow inward twoscore pages John has distilled his ain major query contributions, as well as several hundred papers of a nevertheless active literature, yet brought y'all upwardly to date. My coverage focused only on the simplest idea, as well as wasn't ane 10th this consummate a summary of the electrical flow literature.
Chapter six on consumption based property pricing is likewise elegant as well as comprehensive. John jumps correct inward to information amongst the equity premium, riskfree rate, as well as volatility puzzles (p. 164). Then he speedily outlines the huge literature of responses to the puzzles (p. 167) ane time to a greater extent than inward brusque digestible paragraphs. The large ones, fourth dimension varying disasters, Epstein-Zin, long-run risk, ambiguity aversion as well as (nearly lastly but non least) habit formation as well as durable goods each larn a few well-chosen pages, each self contained amongst derivations (a derivation of the Epstin-Zin SDF is non fun), but non windy. Unusually, John also includes an elegant chapter vii on production-based property pricing as well as full general equilibrium. I call upwardly this approach is relatively unexplored as well as promising -- I'm glad to infer John agrees. In both areas, my latest survey inward Macro-Finance is non nearly as economical. John spryly gets to the point.
It wold non live a John Campbell majority without a chapter on fixed income, as well as this ane does non disappoint. Affine models, empirical piece of employment on the expectations hypothesis, a rigid emphasis on the link betwixt macroeconomics as well as term construction - absent inward almost treatments -- as well as linking involvement rates as well as central rates are rigid points.
Here though, y'all watch ane limitation of the book, inward compass at least. Everything, including fixed income, is done inward discrete time. This fact for certain makes it to a greater extent than accessible to economists, as well as almost of John's voluminous piece of employment has been inward discrete time. But almost of the ideas inward property pricing are much easier inward continuous time, ane time ane masters the elements of Ito's lemma manipulations. Term construction models are commonly done inward continuous time. In revising Asset Pricing and the online versions, I pick out moved exclusively to continuous fourth dimension rather than lognormal approximations. It's much simpler that way, as well as continuous fourth dimension is a measure business office of a finance PhD's toolkit. This otherwise comprehensive majority doesn't pick out whatever choice pricing inward it, though Black-Scholes is a cornerstone of finance. Well, John hasn't worked on that, as well as his query is by as well as large presented inward discrete time. Adding continuous fourth dimension would add together a lot of pages. It keeps the majority quite self contained. But it does hateful that a course of written report inward finance volition ask another reference fabric for that of import part.
The adjacent 3 chapters reverberate ane time to a greater extent than many of John's wide-ranging contributions. It is a criminal offense that nosotros nevertheless piece of employment static mean-variance optimization -- as well as yesteryear "we" I include the entire manufacture as good as academia -- when nosotros know state variables are moving to a greater extent than or less all the time. John has made some peachy strides inward trying to brand intertemporal portfolio allotment as well as inter temporal property pricing come upwardly alive. There is a lot left to do here, but if y'all desire to larn started Chapter nine on inter temporal gamble brings y'all upwardly to appointment (or at to the lowest degree faster than trying to read all of John's papers!)
Chapter 10 on identify finance is a peachy illustration of a topic that is novel to the property pricing canon. How do nosotros sympathise what portfolios people genuinely hold? You larn a peachy summary of that work. It's followed yesteryear an first-class Chapter eleven on the economic science of gamble sharing as well as speculation as well as Chapter 12 on asymmetric information as well as liquidity. This besides is non yet business office of the textbook canon but shortly volition be, as these issues are key to electrical flow research. The classic theory of finance, the joke goes, is perfectly mirrored inward the marketplace for senior faculty: Prices change, at that topographic point is no volume. There is a recent explosion inward agreement the mechanics of trading, as well as these spare chapters volition mail students on their way.
Like continuous time, the majority also does non pick out a chapter on the recent explosion of models inward property pricing amongst fiscal frictions. Perhaps John but hasn't written inward that expanse yet! But an writer (me) whose finance majority omitted a chapter on portfolio theory tin mail away hardly complain, as well as knowing John's evident mania for scholarship, it volition probable live at that topographic point inward the revision.
In sum, this is a must-read majority for whatever Ph. D. educatee inward finance or fiscal economics, as well as must-have majority for whatever serious scholar of finance. It is non organized, as I tried to do inward Asset Pricing around a Big Idea, trying to motion how nosotros do query inward a detail direction. That is probable an advantage. Instead, it shines inward a crystal-clear, nearly encyclopedic summary of electrical flow ideas inward the macroeconomics as well as finance literature, consummate amongst an as encyclopedic citation listing for those wanting to become further. It is distilled similar fine scotch. Barrels of fine scotch.
