This paper is based on the premise that knowledge about the alphas of one set of funds will influence an investor's beliefs about other funds. This will be true insofar as an investor's expectation about the performance of a fund is partly a belief about the abilities of mutual fund managers as...

In asset pricing, estimation risk refers to investor uncertainty about the parameters of the return or cashflow process. We show that, with estimation risk, the empirical properties of prices and returns can differ significantly from the properties perceived by rational investors. As a...

In this paper, we conduct a simulation analysis of the Fama and MacBeth (1973) two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return models. We also provide some new analytical results on computational issues, the...

It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size-B/M portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used in the...

Over the years, many asset pricing studies have employed the sample cross-sectional regression (CSR) R2 as a measure of model performance. We derive the asymptotic distribution of this statistic and develop associated model comparison tests, taking into account the inevitable impact of model...

In asset pricing, estimation risk refers to investor uncertainty about the parameters of the return or cashflow process. We show that with estimation risk the observable properties of prices and returns can differ significantly from the properties perceived by rational investors. In particular,...

This paper studies the asset-pricing implications of parameter uncertainty. We show that, when investors must learn about expected cash flows, empirical tests can find patterns in the data that differ from those perceived by rational investors. Returns might appear predictable to an...

The pricing of the Chen, Roll, and Ross (CRR) macrovariables is re-examined and found to be surprisingly sensitive to reasonable alternative procedures for generating size portfolio returns and estimating their betas. These methods include the full-period post-ranking return approach used in...

We extend Kandel and Stambaugh's (1996) work on return predictability and dividend yield to accommodate time-variation in market risk as well as expected return. Variation in risk is statistically and economically important, but most of the yield related return predictability is unrelated to...