We use bootstrap simulations to examine the properties of long-horizon U.S. stock market returns. Distributions of continuously compounded returns converge toward normal distributions as we extend the horizon from one to 30 years, and distributions of dollar payoffs converge toward lognormal. We...

The continuously compounded (CC) interest rate on a one-month Treasury bill observed at the end of month t-1 is the sum of a CC expected real return and a CC expected inflation rate, Rt-1 = Et-1(rt) + Et-1(It). Two approaches are used to split Rt-1 between its two components. In the first,...

We use the cross-section regression approach of Fama and MacBeth (FM 1973) to construct cross-section factors corresponding to the time-series factors of Fama and French (FF 2015). Time-series models that use only cross-section factors provide better descriptions of average returns than...

The average monthly premium of the Market return over the one-month T-Bill return is substantial, as are average premiums of value and small stocks over Market. As the return horizon increases, premium distributions become more disperse, but they move to the right (toward higher values) faster...

Variables with strong marginal explanatory power in cross-section asset pricing regressions typically show less power to produce increments to average portfolio returns, for two reasons. (i) Adding an explanatory variable can attenuate the slopes in a regression. (ii) Adding a variable with...

The lending channel model posits that control of deposits that have reserve requirements allows the Fed to constrain the financing of the illiquid loans to businesses and consumers that are the comparative advantage of banks and their link to real activity. The constraint works because banks do...

Government stimulus programs that transfer resources to citizens are meant to spur consumption. I examine the effects of stimulus through the lens of the permanent income (PI) hypothesis. The PI model predicts that a temporary increase in income due to stimulus leads to a small increase in...

Variation in monthly metropolitan area house prices unrelated to future rents clouds forecasts of rents from price-rent ratios and lagged changes in house prices. If this noise in house prices is correlated across areas, the problem is mitigated by measuring rent growth regression variables net...