The extant literature demonstrates the importance of stock return predictability for portfolio allocation. The usefulness of incorporating return predictability into portfolio decisions is most evident for Bayesian investors who build their portfolios based on their prior beliefs. I show that...

The inquiries to return predictability are traditionally limited to conditional mean, while literature on portfolio selection is replete with moment-based analysis with up to the fourth moment being considered. This paper develops a distribution-based framework for both return prediction and...

This paper reconsiders the effect of investor sentiment on stock prices. Using survey-based sentiment indicators from Germany and the US we confirm previous findings of predictability at intermediate time horizons. The main contribution of our paper is that we also analyze the immediate price...

We document that over the period 1953-2011 US bond returns are predictable in expansionary periods but unpredictable during recessions. This result holds in both in-sample and out-of-sample analyses and using both univariate regressions and combination forecasting techniques. A simulation study...

This paper discusses nonparametric series estimation of integrable cointegration models using Hermite functions. We establish the uniform consistency and asymptotic normality of the series estimator. The Monte Carlo simulation results show that the performance of the estimator is numerically...

We study return predictability of stock indexes of blue chip firms and smaller hightechnology firms in Germany, France, and the United Kingdom during the second half of the 1990s. We measure return predictability in terms of first-order autocorrelation coefficients, and find evidence for return...

This paper uses a stylised asset-pricing model to show that sunspots may cause asset returns to be predictable, a widely documented feature of many speculative markets. This result parallels and extends previous works showing that sunspots render asset prices excessively volatile.

This study documents a six-fold increase in short-term return reversals during earnings announcements relative to non-announcement periods. Following prior research, we use reversals as a proxy for expected returns market makers demand for providing liquidity. Our findings highlight significant...

I examine the effects of return predictability on option prices for the market portfolio in the presence of stochastic volatility and/or stochastic interest rates. The analysis is implemented in an equilibrium framework where a consistent option pricing model is derived with the return...

We study an investor's optimal consumption and portfolio choice problem when he is confronted with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor's aversion...