The main competitor to this book is cochrane 2005 as

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The main competitor to this book is Cochrane (2005).As previouslymentioned, this book has a much tighter focus on the stochastic discountfactor and the general equilibrium approach to asset pricing.It does notcover portfolio choice, and does not try to integrate portfolio choice withequilibrium asset pricing theory.It does however have a strong empiricalorientation which is consistent with my approach, and which also charac-terizes Cochrane°s AFA presidential address (Cochrane 2011), the textbookby Singleton (2006), and trade books such as Ilmanen (2011) and Siegel(2007).There are many other textbooks with a strong theoretical ori-entation, including Back (2010), Du¢ e (2001), Gollier (2001), Huang andLitzenberger (1998), Ingersoll (1987), Munk (2013), Pennacchi (2007), andSkiadas (2009).These books are highly recommended for their rigoroustreatment of asset pricing theory, but pay relatively little attention to em-pirical phenomena.The material in this book has been in²uenced by professional interactionsthroughout my career, and I owe too many debts to be able to do them justicehere.However, I must thank my dissertation advisors at Yale, Steve Ross,Jim Tobin, and above all Bob Shiller; important early colleagues at Prince-ton including Ben Bernanke, Angus Deaton, Sandy Grossman, and PeteKyle; my coauthors including John Ammer, Laurent Calvet, John Cochrane,Stefano Giglio, Jens Hilscher, Martin Lettau, Andrew Lo, Sydney Ludvig-xiii
CHAPTER 0.PREFACEson, Craig MacKinlay, Burt Malkiel, Christopher Polk, Tarun Ramadorai,Ben Ranish, Bob Shiller, Paolo Sodini, Adi Sunderam, Jan Szilagyi, SamThompson, Bob Turley, Luis Viceira, Tuomo Vuolteenaho, and Yexiao Xu;my Harvard ±nance colleagues including Andrei Shleifer and Jeremy Stein;my research assistant during the summer of 2013, Emily Wu, who producedmany of the tables and ±gures in the book; and the many talented stu-dents who have helped me teach the PhD course over the years includingEric Budish, Eduardo Davila, Stefano Giglio, Sam Hanson, Jens Hilscher,Dirk Jenter, Vassil Konstantinov, Borja Larrain, Ian Martin, Tim McQuade,Stephen Shore, Luis Viceira, Joshua White, and Yao Zeng.Merely listingthese names should help convey the extraordinary quality of the students Ihave been privileged to teach.They have made a tremendous contributionto this book.xiv
Part IStatic Portfolio Choice andAsset Pricing1
Chapter 1Choice Under UncertaintyAsset pricing theory aims to describe the equilibrium in ±nancial markets,where economic agents interact to trade claims to uncertain future payo/s.Both adjectives, ³uncertain´and ³future´, are important µas suggested bythe title of Christian Gollier°s 2001 book,The Economics of Risk and Timeµbut in this chapter we review the basic theory of choice under uncertainty,ignoring time by assuming that all uncertainty is resolved at a single futuredate.The chapter draws heavily on both Gollier°s book and Jon Ingersoll°s1987 bookTheory of Financial Decisionmaking.

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