Recent imperfect capital market theories predict the presence of asymmetries in the variation of small and large firms risk over the economic cycle. Small firms with little collateral should be more strongly affected by tighter credit market conditions in a recession state than large, better...

Despite mounting empirical evidence to the contrary, the literature on predictability of stock returns almost uniformly assumes a time-invariant relationship between state variables and returns. In this paper we propose a two-stage approach for forecasting of financial return series that are...

Markov switching models with time-varying means, variances and mixing weights are applied to characterize business cycle variation in the probability distribution and higher order moments of stock returns. This allows us to provide a comprehensive characterization of risk that goes well beyond...

Economics is primarily a non-experimental science. Typically, we cannot generate new data sets on which to test hypotheses independently of the data that may have led to a particular theory. The common practice of using the same data set to formulate and test hypotheses introduces data-snooping...

This paper shows that many of the empirical biases of the Black and Scholes option pricing model can be explained by Bayesian learning effects. In the context of an equilibrium model where dividend news evolve on a binomial lattice with unknown but recursively updated probabilities we derive...

 In this paper we utilize Whites Reality Check bootstrap methodology (White (1997)) to evaluate simple technical trading rules while quantifying the data-snooping bias and fully adjusting for its effect inthe context of the full universe form which the trading rules are drawn. Henxe, for the...

This paper presents new empirical evidence on the existence of structural breaks in the fundamentals process underlying US stock prices and develops an asset pricing model which considers the possibility of such breaks. Three break points are identified: The Great Depression, World War II, and...