The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

Fama and French (2002) estimate the equity premium using dividend growth rates to measure expected rates of capital gain. We use a similar method to study the value premium. From 1941 to 2005, the expected HML return is on average 6.0% per annum, consisting of an expected dividend-growth...