We examine whether the predictability and business-cycle dependence of excess returns in US Treasuries can be more naturally explained in terms of state-dependent risk premia or a specific cognitive bias (representativeness). We show that the extremely parsimonious cognitive-bias model in...

In this paper we try to understand the economic explanation of the difference in predictability afforded by the old and the new-generation return-predicting factors. To do so, first we show that the Cieslak-Povala (2010) approach can be expressed in terms of a conditional prediction of where the...