We extend Kandel and Stambaugh's (1996) work on return predictability and dividend yield to accommodate time-variation in market risk as well as expected return. Variation in risk is statistically and economically important, but most of the yield related return predictability is unrelated to...

It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size-B/M portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used in the...

In this paper, we conduct a simulation analysis of the Fama and MacBeth (1973) two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return models. We also provide some new analytical results on computational issues, the...

This paper studies the asset-pricing implications of parameter uncertainty. We show that, when investors must learn about expected cash flows, empirical tests can find patterns in the data that differ from those perceived by rational investors. Returns might appear predictable to an...

The pricing of the Chen, Roll, and Ross (CRR) macrovariables is re-examined and found to be surprisingly sensitive to reasonable alternative procedures for generating size portfolio returns and estimating their betas. These methods include the full-period post-ranking return approach used in...

In the study reported here, we set out to examine whether and how the availability of indexed bonds might affect investors' asset allocation decisions. We used historical yields on conventional U.S. T-bonds and an inflation-forecasting model to create a series of hypothetical indexed bond...

What does it mean to assert that the CAPM is quot;dead?quot; Like Fama and French (1995), we focus on the practical issue of whether betas defined with respect to commonly-employed market proxies provide useful information about expected returns. The possibility that a more comprehensive market...

We assess earnings lack of timeliness and value- irrelevant noise in earnings as explanations for the weak contemporaneous return-earnings association. Earnings lack timeliness because objectivity, verifiability, and conservatism conventions underlie the accounting measurement process. Noise in...

We find reliable evidence that both dividend yield and book-to-market (B/M) track time-series variation in expected real one-year stock returns over the period 1926-91 and the subperiod 1941-91. The B/M relation is stronger over the full period, while the dividend yield relation is stronger in...