Standard inference works poorly in models of the form y=gamma*g(beta,x) epsum, because the standard error for beta_hat depends on gamma_hat. In this paper we show that this problem is usefully studied by working with the linearization of g(.) and the resulting reduced form regression. Bias and...

The literature documents that low stock returns are associated with increased volatility, but two competing explanations have proved difficult to disentangle. A negative return increases leverage making equity value more volatile. However, volatility feedback increases the risk premium when a...

This paper examines whether permanent earnings growth, crucial to stock valuation, increased during the 1990s as suggested by proponents of the 'New Economy. Using Samp;P 500 earnings for 1951-2000, we do not find strong evidence of either a one-time structural break or gradual change. However,...

This paper shows that the Zero-Information-Limit-Condition (ZILC) formulated by Nelson and Startz (2006) holds in the GARCH(1,1) model. As a result, the GARCH estimate tends to have too small a standard error relative to the true one when the ARCH parameter is small, even when sample size...