We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns in which MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate security risk loadings using real data on prepayment...

This paper recasts the consumption asset pricing model in terms of observable accounting outcomes by recognizing accounting principles that connect those outcomes to consumption and the risk to consumption. The model prompts the construction of a pricing factor from observed accounting...

Standard valuation models forecast cash flows or earnings, add a growth rate, and discount the cash flows to their present value with a discount rate that typically reflects the cost of capital. But as the author argues, projecting the long‐term growth rate is essentially speculative; and along...

The paper presents an accounting framework for identifying characteristics that indicate expected returns. A model links expected returns to expected earnings and earnings growth, so a characteristic indicates expected returns if it indicates expected earnings and earnings growth that the market...

The paper presents a framework for identifying accounting numbers that indicate risk and expected return. The framework establishes conditions under which book-to-price (B/P), so prominent in asset pricing, indicates expected returns: B/P indicates expected returns if it forecasts future...

We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns in which MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate security risk loadings using real data on prepayment...