We evaluate the performance of different models for the covariance structure of stock returns, focusing on their use for optimal portfolio selection. Comparisons are based on forecasts of future covariances as well as the out-of-sample volatility of optimized portfolios from each model. A few...

The ability to identify which factors best capture systematic return covariation is central to applications of multifactor pricing models. This paper uses a common data set to evaluate the performance of various proposed factors in capturing return comovements. Factors associated with the...

We propose an approach to measuring the state of the economy via textual analysis of business news. From the full text of 800,000 Wall Street Journal articles for 1984-2017, we estimate a topic model that summarizes business news into interpretable topical themes and quantifies the proportion of...

We relate the predictability of future returns from past returns to the market's underreaction to information, focusing on past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. There is little evidence of...

This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The...

We study the pricing of uncertainty shocks using a wide-ranging set of options that reveal premia for macroeconomic risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while those exposed to the realization of large shocks have earned...