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- and B/M-sorted portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used...

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,...

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 asset pricing, estimation risk refers to investor uncertainty about the parameters of the return or cashflow process. We show that estimation risk can significantly affect the time-series and cross-sectional behavior of asset prices. In particular, parameter uncertainty will tend to induce...

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...

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...