We use co-fractional models to evaluate the predictive relations between returns and a valuation ratio. The co-fractional model can handle situations where financial returns are predicted using persistent valuation ratios, like dividend to price. For our application we consider very long time...

Predictive return regressions with persistent regressors are typically plagued by (asymptotically) biased/inconsistent estimates of the slope, non-standard or potentially even spurious statistical inference, and regression unbalancedness. We alleviate the problem of unbalancedness in the...

Prior research shows that disagreement leads to speculative trading and a speculative premium in stock prices. We examine how managers respond to this speculative premium. Using exogenous variation in speculative trading due to the reconstitution of the Russell 1000/2000 indices, we find that...