A generalized version of Fama's proxy hypothesis identifies a downward bias in Phillips curve estimations. The (spurious) negative relation between real stock returns and inflation emerges if output rate fluctuations dominate cyclical component fluctuations of a Lucas-type Phillips curve.

Bias in implied cost of equity estimates arises from analyst optimism and a degrees-of-freedom problem. The common practice in empirical studies of using a proxy for the earnings forecast horizon beyond two years in the Ohlson and Juettner-Nauroth (OJ) model is potentially biased. We derive a...