We propose a new approach to imposing economic constraints on forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two...

Three concepts: stochastic discount factors, multi-beta pricing and mean-variance efficiency, are at the core of modern empirical asset pricing. This chapter reviews these paradigms and the relations among them, concentrating on conditional asset-pricing models where lagged variables serve as...

We examine whether real-time return forecasts are valuable to an investor looking to allocate their portfolio across a wide selection of countries. We expand the Sum-of-Parts (SoP) method for forecasting stock returns to an international setup by adding FX returns as an additional component. We...

We identify all return leader-follower pairs among individual stocks using Granger causality regressions. Thus-identified leaders can reliably predict their followers' returns out of sample, and the return predictability works at the level of individual stocks rather than industries. Our results...

In this paper, we extend the literature on crash prediction models in three main ways. First, we explicitly relate crash prediction measures and asset pricing models. Second, we present a simple, effective statistical significance test for crash prediction models. Finally, we propose a...

Since insider transactions are implemented through personal accounts, the NYSE classifies these trades as retail transactions. Indeed, imbalances of retail trading and insider trading move in lockstep and predict stock returns in the cross-section. A high-minus-low strategy in retail trading...

Purpose: In this paper we try to explain US stock market variations and cash flow fundamentals by employing three different book-valued based ratios, First, we explore the explanatory capacity of the simple book-market ratio on time-varying expected returns, and procced on altering its...

We survey the literature on stock return forecasting, highlighting the challenges faced by forecasters as well as strategies for improving return forecasts. We focus on U.S. equity premium forecastability and illustrate key issues via an empirical application based on updated data. Some studies...

We explore the dimensionality of stock returns in North America, Europe, Japan, Pacific, and Emerging Markets on the basis of 240 cross-sectional predictors. Our approach allows us to identify those predictors that are most consistently related to nonmicro-cap stock returns (i.e., independent of...

We show that technical indicators deliver economic value in predicting the U.S. equity premium. A crucial element of this value stems from the stability of return predictability over the full sample period from 1950 to 2013. Results tentatively improve over time and beat alternatives over...