Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has...

Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the...

Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the...

Modigliani and Cohn's (1979) hypothesis suggests that time-variation in the level of inflation causes the market's subjective expectation of the future equity premium to deviate systematically from the rational expectation. When inflation is high (low), the rational equity-premium expectation is...

Most previous research evaluates market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies. We measure the ability of the capital asset pricing model (CAPM) and the efficient-market hypothesis to explain the level of stock prices. First, we...

We examine the performance of stocks that represent managers' quot;Best Ideas.quot; We find that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managers' portfolios, by approximately 1.6 to 2.1 percent per...

We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small...