Recent survey evidence suggests that investors form beliefs about future stock returns by predominantly extrapolating their own experience: They overweight returns they have personally experienced while underweighting returns from earlier years and consequently expect high (low) stock market...

Financial data is characterized by a low signal-to-noise ratio making it difficult to identify robust functional forms that map the characteristics of financial securities to expected returns (Lettau and Pelger, 2020). In this paper, we modify the standard prediction problem in empirical asset...