We adapt a metric of Kandel and Stambaugh (1995) to evaluate linear asset pricing models. The quot;KS-ratioquot; criterion rates a model's usefulness based on the mean portfolio return a mean-variance decision maker obtains for any variance choice by using the model for optimal portfolio...

In an economy with time-varying investment opportunities, the changes in technology prospects affect aggregate consumption and individual firms' future dividends, and may lead to systematic risk. We construct a technology factor to track the changes in technology prospects measured by U.S....

We consider asset pricing in a monetary economy where liquid assets are held to lower transaction costs. The ensuing model extends the capital asset pricing model (CAPM) and the consumption CAPM by deriving real money growth as an additional factor determining returns. Empirically, the two model...

We present a theoretical perspective that motivates the use of the Generalized Least Squares R-Square, prominently advocated by Lewellen et al. [Lewellen, J., Nagel, S., Shanken, J., forthcoming. A skeptical appraisal of asset-pricing tests. Journal of Financial Economics], as an evaluation...