We develop a simulation-based procedure to test for stock return predictability with multiple regressors. The process governing the regressors is left completely free and the test procedure remains valid in small samples even in the presence of non-normalities and GARCH-type effects in the stock...

We improve on the Instrumented Principal Component Analysis (IPCA) model developed in Kelly, Pruitt and Su (2019) by providing more efficient Generalized Least Square (GLS) estimators with a closed-form limiting distribution allowing for a more consistent (mis)pricing inference. The IPCA model...

In the three-factor model of Fama and French (1993), portfolio returns are explained by the factors Small Minus Big (SMB and High Minus Low (HML) which capture returns related to firm capitalization (size) and the book-to-market ratio (B/M). In the standard approach of the model, both the test...