The evaluation of hedge fund performance is challenging given the flexible nature of hedge funds' strategies and their lack of operational transparency. As a result inference about skill is inevitably contaminated by the error in the benchmark model. To address this concern, we propose a model...

Model selection, i.e., the choice of an asset pricing model to the exclusion of competing models, is an inherently misguided strategy when the true model is unavailable to the researcher. This paper illustrates the advantages of a model pooling approach in characterizing the cross section of...

Recent studies link mutual fund performance to measures of active management, and this evidence often takes the form of large spreads in unconditional alphas for characteristic-sorted portfolios. Unconditional benchmarks can, however, produce misleading inferences on managerial skill for...

The ICAPM implies that the market's conditional expected return is proportional to its conditional variance and that the reward-to-risk ratio equals the representative investor's coefficient of relative risk aversion. Prior studies examine this relation using the stock market to proxy for...

Prior studies find that a strategy that buys high-beta stocks and sells low-beta stocks has a significantly negative unconditional Capital Asset Pricing Model (CAPM) alpha, such that it appears to pay to "bet against beta." We show, however, that the conditional beta for the high-minus-low beta...

Kandel and Stambaugh (1996) demonstrate that forecasting variables with weak statistical support in predictive return regressions can exert considerable economic influence on portfolio decisions. Using a Bayesian vector autoregression framework with stochastic volatility in market returns and...

Using a comprehensive set of 103 equity strategies, we analyze the value of volatility-managed portfolios for real-time investors. Volatility-managed portfolios do not systematically outperform their corresponding unmanaged portfolios in direct comparisons. Consistent with Moreira and Muir...

A standard production-based asset pricing model with labor frictions implies a negative relation between job postings and expected stock market returns. As the discount rate rises in recessions, the present value of hiring declines and firms optimally post fewer job openings. We confirm this...