A Bayesian approach is used to investigate a sample’s information about a portfolio’s degree of inefficiency. With standard diffuse priors, posterior distributions for measures of portfolio inefficiency can concentrate well away from values consistent with efficiency, even when the portfolio...

An equilibrium pricing model with time-varying conditional moments of consumption growth is used to analyze the behavior of conditional moments of stock returns for long and short investment horizons. We examine the behavior over time of estimates of the conditional means and variances of...

Expected returns over long and short horizons are modeled using two approaches: an equilibrium asset pricing model and a vector autoregression (VAR). Empirical properties of returns that are consistent with the equilibrium model’s implications include (i) an annual "equity premium" of about...

In a generalized-least-squares (GLS) regression of mean returns on betas, the slope and R-squared are determined uniquely by the mean-variance location of the market index relative to the minimum-variance boundary. In contrast to ordinary-least-squares, GLS gives a zero slope only if the mean...