Average skewness, which is defined as the average of monthly skewness values across firms, performs well at predicting future market returns. This result still holds after controlling for the size or liquidity of the firms or for current business cycle conditions. We also find that average...

Pastor and Stambaugh (2012) demonstrate that from a forward-looking perspective, stocks are more volatile in the long run than they are in the short run. We investigate how the economic constraint of non-negative equity premia aspects predictive variance. When investors expect non-negative...