John H. Cochrane

John Howland Cochrane (/ˈkɒkrən/; born 26 November 1957) is an economist, specializing in financial economics and macroeconomics. He is a Senior Fellow of the Hoover Institution at Stanford University.

John H. Cochrane
Born26 November 1957 (1957-11-26) (age 63)
Chicago, Illinois, United States
NationalityUnited States
InstitutionUniversity of Chicago Booth School of Business
FieldFinancial economics, Macroeconomics
Alma materUniversity of California at Berkeley (Ph.D.)
MIT (B.S.)
Information at IDEAS / RePEc

Career

Cochrane received his Ph.D. in Economics from the University of California at Berkeley in 1986, after having obtained a B.S. in Physics from MIT in 1979 and having served as a junior economist on the Council of Economic Advisers (1982–1983). He was hired by the University of Chicago economics department in 1986 and moved to the business school in 1993. Prior to joining the Hoover Institution, he was the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.

Cochrane has served as head of the National Bureau of Economic Research asset pricing group, and was the editor of the Journal of Political Economy from 1998 to 2003. He was elected Fellow of the Econometric Society in 2001, served as vice-president of the American Finance Association in 2008, and was elected president of this learned society for the 2010 term.

Main contributions

The central idea of Cochrane's research is that macroeconomics and finance should be linked, and a comprehensive theory needs to explain both of the following:

  • how, given the observed prices and financial returns, households and firms decide on consumption, investment, and financing.
  • how, in equilibrium, prices and financial returns are determined by households and firms decisions.

That is a standard general equilibrium logic, but many financial economists do not view it as a priority and prefer to explain prices without an ultimate reference to choices of households and firms. Similarly, many macroeconomists choose not to worry about asset prices.

In this vein, Cochrane's work has been to document some empirical patterns and offer some potential explanations. His 1999 Journal of Political Economy, with John Y. Campbell, develops a representative agent model with nonlinear habits that matches the high and volatile risk premium on stocks, the predictability of stock returns, etc.[1] In several articles (1991 The Journal of Finance, 1996 Journal of Political Economy), he develops and tests a "production-based asset pricing model" based on the q-theory of investment.[2][3]

In two 1992 articles, Cochrane emphasized some features of asset prices which are difficult to account for, such as the predictability of equity returns, and the longterm equity premium.[4][5] His more recent work, with Monika Piazzesi, studies bond markets. In particular, in a number of papers, Cochrane and Piazzesi study the predictability of bond returns.

Other contributions

Cochrane has also worked on the fiscal theory of the price level,[6] on the debate between permanent and temporary shocks in macroeconomic fluctuations,[7] and the cost of near-rational behavior.[8]

Asset Pricing

Cochrane is the author of Asset Pricing,[9] a widely used textbook in graduate courses on asset pricing. According to his own words, the organizing principle of the book is that everything can be traced back to specializations of a single equation: the basic pricing equation.[10] Cochrane received the TIAA-CREF Institute Paul A. Samuelson Award for this book.

Media appearances

Since 2008, Cochrane has appeared more extensively in the media as he contributed to the debate on the financial crisis. Paul Krugman criticized repeatedly his viewpoint on his blog [11][12] and in a New York Times Magazine article,[13] leading John Cochrane to write a response on his website, which was subsequently published in The Wall Street Journal.[14]

Awards

Personal life

Cochrane's father was a historian at the University of Chicago. Cochrane is married to Elizabeth Fama, a children's book author and the daughter of noted financial economist Eugene Fama. They have four children and live in Hyde Park.[16]

Cochrane is also a noted sailplane pilot who flies an ASW-27 with the callsign BB. He was a member of the US Team at the 2010 World Gliding Championships in Hungary.[17]

References
  1. Campbell, John Y. and Cochrane, John H. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior" Journal of Political Economy, 107, 205–251 (April 1999).
  2. Cochrane, John H. "Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations." Journal of Finance 46 (1) (March 1991) 209–237.
  3. Cochrane, John H. "A Cross-Sectional Test of an Investment-Based Asset Pricing Model" Journal of Political Economy, 104 (June 1996).
  4. Cochrane, John H. and Lars Peter Hansen, "Asset Pricing Explorations for Macroeconomics",1992 NBER Macroeconomics Annual 115–165.
  5. Cochrane, John H. "Explaining the Variance of Price-Dividend Ratios" Review of Financial Studies (1992) 5:2, 243–280
  6. Cochrane, John H., "Long term debt and optimal policy in the fiscal theory of the price level" Econometrica 69, 69–116 (2001).
  7. Cochrane, John H., "Permanent and Transitory Components of GNP and Stock Prices", Quarterly Journal of Economics 109(1) (February 1994) 241–266.
  8. Cochrane, John H. "The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives" American Economic Review 79 (June 1989) 319–337.
  9. Cochrane, John H., Asset Pricing, Princeton University Press, 2001.
  10. Cochrane, John H., Asset Pricing, Princeton University Press, 2001, p. xvii
  11. Krugman, Paul, "A Dark Age of macroeconomics (wonkish)", January 27, 2009.
  12. Krugman, Paul, "Brad DeLong’s Foolishness", February 23, 2010.
  13. Krugman, Paul, "How Did Economists Get It So Wrong?", New York Times Magazine, September 2, 2009.
  14. Cochrane, John H., "How did Paul Krugman get it so Wrong?", September 16, 2009.
  15. Interview given to Neue Zuercher Zeitung, May 26, 2014, p. 17
  16. Short Bio on Cochrane's webpage, accessed on 2009-10-20.
  17. http://www.flatlandcup.hu/2010/csapatok.php
  • John Cochrane's home page at the University of Chicago
  • Publications at the National Bureau of Economic Research
  • Appearances on C-SPAN
  • Works by or about John H. Cochrane in libraries (WorldCat catalog)
  • The Grumpy Economist John Cochrane's Blog
  • Roberts, Russ. "John Cochrane Podcasts". EconTalk. Library of Economics and Liberty.
  • John H. Cochrane publications indexed by Google Scholar
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