John Howland Cochrane is an economist, specializing in financial economics and macroeconomics. He is the AQR Capital Management Professor of Finance at the University of Chicago Booth School of Business.
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 (1984—1985). He was hired by the University of Chicago economics department in 1986 and moved to the business school in 1993.
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: a comprehensive theory needs to explain both:- 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.
This is a standard general equilibrium logic, but many financial economists do not view this 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 J.P.E. article with John Y. Campbell develops a representative agent model with nonlinear habits which matches the high and volatile risk premium on stocks, the predictability of stock returns, etc. In several articles (1991 J.F., 1996 J.P.E.) he develops and tests a "production-based asset pricing model" based on the q-theory of investment.
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 long-run equity premium.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, on the debate between permanent and temporary shocks in macroeconomic fluctuations, and the cost of near-rational behavior.
Cochrane is the author of Asset Pricing, 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. Cochrane received the TIAA-CREF Institute Paul A. Samuelson Award for this book.
Since 2008, John 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 and in a New York Times magazine article, leading John Cochrane to respond on his website.
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.
