We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

This paper applies a Bayesian break method to studying the empirical time-varying relations between stock price ratios and subjective expectations across the market and 30 industry portfolios monthly from 1976 to 2020. Cash flow expectations unconditionally explain 80% of price variations since...