We contribute to the debate over whether forecastable stock returns reflect an unexploited profit opportunity or rationally reflect risk differentials. We test whether agents could earn excess returns by selecting stocks which have a low market price compared to an estimate of the fundamental...

We show that uncertainty about parameters of the short rate model can account for the rejections of the expectations hypothesis for the term structure of interest rates. We assume that agents employ Bayes rule to learn parameter values in the context of a model that is subject to stochastic...