Campbell, JohnGiglio, StefanoPolk, Christopher2014-05-122013Campbell, John Y., Stefano Giglio, and Christopher Polk. 2013. Hard Times. Review of Asset Pricing Studies 3, no. 1: 95–132.2045-99202045-9939http://nrs.harvard.edu/urn-3:HUL.InstRepos:12172786We show that the stock market downturns of 2000–2002 and 2007–2009 have very different proximate causes. The early 2000s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000s saw a decrease in rational expectations of future profits. We reach these conclusions by using a VAR model of aggregate stock returns and valuations, estimated both without restrictions and imposing the cross-sectional restrictions of the intertemporal capital asset pricing model (ICAPM). Our findings imply that the 2007–2009 downturn was particularly serious for rational long-term investors, whose losses were not offset by improving stock return forecasts as in the previous recession. (JEL G12, N22)en-USJournal Article2014-05-02John Y. Campbell, Stefano Giglio, and Christopher Polk2014-05-1210.3386/w16222