Economic objectives are often ignored when estimating parameters, though the loss of doing so can be substantial. This paper proposes a way to allow Bayesian priors to reflect the objectives. Using monthly returns of the Fama-French 25 size and book-to-market portfolios and their three factors...

The median is often a better measure than the mean in evaluating the long-term value of a portfolio. However, the standard plug-in estimate of the median is too optimistic. It has a substantial upward bias that can easily exceed a factor of two. In this paper, we provide an unbiased forecast of...

While a host of economic variables have been identified in the literature with the apparent in-sample ability to predict the equity premium, Goyal and Welch (2008) find that these variables fail to deliver consistent out-of-sample forecasting gains relative to the historical average. Arguing...

We reaffirm the stylized fact that bond risk premia are time-varying with macroeconomic condition, even with real-time macro data instead of commonly used final revised data. While real-time data are noisier and render standard forecasts insignificant, we find that, with four efficient...

In this paper, we propose two asymmetry measures for stock returns. Unlike the popular skewness measure, our measures are based on the distribution function of the data rather than just the third central moment. We present empirical evidence that greater upside asymmetries calculated using our...

We establish the out-of-sample predictability of monthly exchange rate changes via machine learning techniques based on 70 predictors capturing country characteristics, global variables, and their interactions. To guard against overfitting, we use the elastic net to estimate a high-dimensional...

This paper constructs a manager sentiment index based on the aggregated textual tone of corporate financial disclosures. We find that manager sentiment is a strong negative predictor of future aggregate stock market returns, with monthly in-sample and out-of-sample R2 of 9.75% and 8.38%,...

We investigate an important question for institutional investors — namely, which hedge fund investing styles help to hedge against bad times? We define good versus bad times as (1) up and down equity market regimes derived from the 200-day moving average of the S&P 500 price index or (2)...

We propose an employee sentiment index, which complements investor sentiment and manager sentiment indices, and find that high employee sentiment predicts a subsequent low market return, significant both in- and out-of-sample. The predictability of the employee sentiment index can also deliver...

We construct a lottery factor that aggregates the information of 16 commonly used lottery features. The lottery factor significantly improves the explanatory power of the four-factor q model in Hou, Xue, and Zhang (2015) and explains all but a few major anomaly returns. In assessing the...