Optimal investment of firms implies that expected stock returns are tied with the expected marginal benefit of investment divided by the marginal cost of investment. Winners have higher expected growth and expected marginal productivity (two major components of the marginal benefit of...

We offer an investment-based interpretation of price and earnings momentum. The neoclassical theory of investment implies that expected stock returns are tied with the expected marginal benefit of investment divided by the marginal cost of investment. Winners have higher expected growth and...

Previous research finds that machine learning methods predict short-term return variation in the cross-section of stocks, even when these methods do not impose strict economic restrictions. However, without such restrictions, the models' predictions fail to generalize in a number of important...

This paper evaluates in-sample and out-of-sample stock return predictability with inflation and output gap, the variables that typically enter the Federal Reserve Bank's interest rate setting rule. To examine the role of monetary policy fundamentals for stock return predictability, we introduce...

Warren Buffett suggested that the ratio of the market value of all publicly traded stocks to the Gross National Product could identify potential overvaluations and undervaluations in the US equity market. We investigate whether this ratio is a statistically significant predictor of equity market...

Divergence in investor beliefs is an important driver of the negative relation between option trading volume and future stock returns. We find a strong negative relation between disagreement-based option trades and future stock returns, and this relation is markedly amplified when the underlying...