We develop a volatility decomposition derived from flexible local projections to quantify the relative contributions of expected discount rates and cash flows to the variation of dividend yields. Local projections enable the incorporation of large information sets, the use of monthly data along...

We introduce a flexible utility-based empirical approach to directly determine asset allocation decisions between risky and risk-free assets. This is in contrast to the commonly used two-step approach where least squares optimal statistical equity premium predictions are first constructed to...

We obtain new methodological and empirical perspectives on the fundamental risk-return tradeoff in stock returns by imposing economic and asset pricing motivated constraints on the equity premium. In contrast to highly ambiguous past empirical findings, these constraints result in a nonlinear...