Our goal is to develop insights about the max squared Sharpe ratio for model factors as a metric for ranking asset-pricing models. We consider nested and non-nested models. The nested models are the CAPM, the three-factor model of Fama and French (1993), the five-factor extension in Fama and...

Variables with strong marginal explanatory power in cross-section asset pricing regressions typically show less power to produce increments to average portfolio returns, for two reasons. (i) Adding an explanatory variable can attenuate the slopes in a regression. (ii) Adding a variable with...

A five-factor model directed at capturing the size, value, profitability, and investment patterns in average stock returns performs better than the three-factor model of Fama and French (FF 1993). The five-factor model's main problem is its failure to capture the low average returns on small...

The average monthly premium of the Market return over the one-month T-Bill return is substantial, as are average premiums of value and small stocks over Market. As the return horizon increases, premium distributions become more disperse, but they move to the right (toward higher values) faster...

We use bootstrap simulations to examine the properties of long-horizon U.S. stock market returns. Distributions of continuously compounded returns converge toward normal distributions as we extend the horizon from one to 30 years, and distributions of dollar payoffs converge toward lognormal. We...

Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility of monthly premiums prevents us from rejecting the hypothesis that expected premiums are the...

Financing decisions seem to violate the central predictions of the pecking order model about how often and under what circumstances firms issue equity. Specifically, most firms issue or retire equity each year, the issues are on average large, and they are not typically done by firms under...

The class of firms that obtain public equity financing expands dramatically in the 1980s and 1990s. After 1979, the rate at which new firms are listed on major U.S. stock exchanges jumps from about 160 to near 550 per year, and the characteristics of new lists change. The cross-section of new...