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...

This paper constructs a fundamental pricing factor based on observed accounting information. In contrast to standard models where accounting data often enter via data dredging, the factor is founded on consumption-based asset pricing theory and accounting principles that connect accounting...

A two-factor model explains returns for a variety of test portfolios, including those based of CAPM beta and those underlying factors in extant pricing models. The two-factor model involves the market factor and a factor based on firms’ fundamentals that has the feature of providing a hedge in...

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...

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...

Many accounting numbers appear in standard factor models, including book value, investment, return on equity (ROE), and other profitability measures. However, they do so without a clear explanation of why they indicate investment risk. The papers shows that these numbers are generated under...

A two-factor Intertemporal Capital Asset Pricing Model (ICAPM) explains returns to risk associated with fundamentals with zero alpha. In contrast, the model identifies non-zero alphas for returns involving price movements rather than fundamentals, such as price momentum and price drifts....