Equilibrium asset pricing models prescribe a correspondence between assets' risk exposures and premiums. Empirical factor models do not, however, satisfy this relationship. We show that a portfolio sorted on a multi-factor model's alphas is the optimal correction to this problem. This correction...

We put forward a model in which analysts are uncertain about a firm's earnings process. Faced with the possibility of using a misspecified model, analysts issue forecasts that are robust to model misspecification. We estimate that this mechanism explains approximately 60% of the autocorrelation...

Option prices predict the cross section of equity returns. We show that, unconditionally, the prices of long-dated options contain all the information relevant for predicting returns. Information, however, shifts towards short-dated options when an earnings announcement is imminent and when...