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(1999)and Chan and Kogan(2001)move in a somewhat different direction by exploring the interactions of agents who have different levels of risk aversion. Some aspects of asset market behavior could also be explained by irrational expectations of investors.If investors are excessively pessimistic about economic growth,for example,they will overprice short-term bills and underprice stocks;this would help to explain the equity premium and riskfree rate puzzles.If investors overestimate the persistence of variations in economic growth,they will overprice stocks when growth has been high and underprice them when growth has been low,producing time-variation in the price of risk(Barsky and De Long 1993,Barberis,Shleifer,and Vishny 1998). This chapter has three objectives.First,it tries to summarize recent work on stock price behavior,much of which is highly technical,in a way that is accessible to a broader pro- fessional audience.Second,the chapter summarizes stock market data from other countries and asks which of the US stylized facts hold true more generally.The recent theoretical literature is used to guide the exploration of the international data.Third,the chapter systematically compares stock market data with bond market data.This is an important discipline because some popular models of stock prices are difficult to reconcile with the behavior of bond prices. The organization of the chapter is as follows.Section 2 introduces the international data and reviews stylized facts 1-9 to see which of them apply outside the United States. (Additional details are given in a Data Appendix available on the author's web page.)Section 3 discusses the equity premium puzzle,taking the volatility of stock returns as given.Section 4 discusses the stock market volatility puzzle.This section also reviews stylized facts 10-13 in the international data. Sections 3 and 4 drive one towards the conclusion that the price of risk is both high and time-varying.It must be high to explain the equity premium puzzle,and it must be time- varying to explain the predictable variation in stock returns that seems to be responsible for the volatility of stock returns.Section 5 discusses models which produce this result,including models with habit-formation in utility,heterogeneous investors,and irrational expectations. 8A111B F% AB J ' % % J ( " ( ' ' - ' % # ' # ) (> ' $ ( - % # ( % % % # % ) ( A=( & :% 116# = # " # L 114B , # ( ( # % # ) " # ( ( ( !" % % ' # ( ( ( ( E % " )1 ! " A; % & ; ' H % B " 6 $ # (% ( % " 2 ( ( )6 " 6 2 ( % ) % - % ' $ # ) % ' ( ( " 8 # % ) # % # ' 4