Our objective is to develop a methodology to price the cross section of asset returns. Despite the hundreds of systematic risk factors considered in the literature (``factor zoo''), there is still a sizable pricing error. We show that what is missing in asset-pricing factor models is not...

We provide a short and selected review of the vast literature on cross-section predictability. We focus on the state of art methods used to forecast the cross-section of stock returns with major predictors and are primarily interested in the ideas, methods, and their applications. To understand...

We develop a normative theory for constructing mean-variance portfolios robust to model misspecification. We identify two inefficient portfolios---an "alpha'' portfolio, representing latent asset demand, that depends only on pricing errors and a "beta'' portfolio that depends on factor risk...