Financial markets and the real economy

the long version

"I survey work on the intersection between macroeconomics and finance. The challenge is to find the right measure of marginal utility of wealth, or "bad times" so that we can understand average return premia distilled in finance "factors" as compensation for assets' tendency to pay off badly in "bad times." I survey the equity premium, consumption-based models, general equilibrium models, and labor income/idiosyncratic risk approaches to this question"--National Bureau of Economic Research web site.