This paper examines the optimal consumption and portfolio-choice problem of long-horizon investors who have access to a riskless asset with constant return and a risky asset ("stocks") with constant expected return and time-varying precision--the reciprocal of volatility. Markets are incomplete,...

Goyal and Welch (2007) argue that the historical average excess stock return forecasts future excess stock returns better than regressions of excess returns on predictor variables. In this article, we show that many predictive regressions beat the historical average return, once weak...

The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices, driven by shocks to market discount rates, while the cash flows of value stocks are particularly sensitive to permanent movements, driven by shocks to aggregate cash flows. Thus, the high...