This paper studies tests of predictability in regressions with a given AR(1) regressor and an asset return dependent variable measured over a short or long horizon. The paper shows that when there is a persistent predictable component in the return, an increase in the horizon may increase the R2...

This paper derives and estimates an equilibrium model of stock price behavior in which exogenous "noise traders" interact with risk-averse "smart money" investors. The model assumes that changes in exponentially detrended dividends and prices are normally distributed, and that smart money...