The expected rate of equity returns is a central input into various managerial and investment decisions that affect the allocation of scarce resources. Research on capital markets has devoted significant effort to studying how and why expected returns vary over time and across firms. Cochrane...

We provide a tractable model of firm-level expected holding period returns using two firm fundamentals ― book-to-market ratio and ROE ― and study the cross-sectional properties of the model-implied expected returns. We find that: 1) firm level expected returns and expected profitability are...