We ask to what extent the negative relation between investment and average stock returns is driven by risk. We show that: (i) the average return spread between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the...

We study the predictability of stock returns using a pure macroeconomic measure of the world business cycle, namely the world's capital to output ratio. This variable tracks variation in expected stock returns in a group of the major industrial economies in the presence of world financial...

The output gap, a production-based macroeconomic variable, is a strong predictor of U.S. stock returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a "fad" in prices being washed away....

This paper derives a real options model that accounts for the value premium. If real investment is largely irreversible, the book value of assets of a distressed firm is high relative to its market value because it has idle physical capital. The firm's excess installed capital capacity enables...

Although there is a widespread belief that stock markets are weak-form efficient, technical analysis is a pervasive activity. The extent is examined to which this apparent paradox can be explained by conditioning the past sequence of prices on the past sequence of volume. A unique data set from...

We investigate the predictable component of excess returns in German, Japanese, UK and US aggregate stock indices, finding evidence to suggest that the frequently documented predictable component in excess returns is predominantly due to a failure in previous research to consider risk.