This paper proposes a way to allow Bayesian priors to reflect the objectives of an economic problem. That is, we impose priors on the solution to the problem rather than on the primitive parameters whose implied priors can be backed out from the Euler equation. Using monthly returns on the...

This paper examines the cross-sectional relation between idiosyncratic volatility and expected stock returns. The results indicate that i) the data frequency used to estimate idiosyncratic volatility, ii) the weighting scheme used to compute average portfolio returns, iii) the breakpoints...

This paper examines the intertemporal relation between downside risk and expected stock returns. Value at Risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant...

This paper provides an analysis of the predictability of stock returns using market-, industry-, and firm-level earnings. Contrary to Lamont (1998), we find that neither dividend payout ratio nor the level of aggregate earnings can forecast the excess market return. We show that these variables...

I introduce two-factor discrete time stochastic volatility models of the short-term interest rate to compare the relative performance of existing and alternative empiricial specificattions. I develop a nonlinear asymmmetric framework that allows for comparisons of non-nested models featuring...