We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

We provide empirical evidence that CAPM-betas positively predict asset returns when market returns are predicted to be high, which occurs about every other month. Consequently, the product of beta and the predicted market return (CAPM) predicts asset returns by combining the out-of-sample...

We investigate the dynamic problem of how much attention an investor should pay to news in order to learn about stock-return predictability and maximize expected lifetime utility. We show that the optimal amount of attention is U-shaped in the return predictor, increasing with both uncertainty...

Persistence risk is an endogenous source of risk that arises when a rational agent learns about the length of business cycles. Persistence risk is positive during recessions and negative during expansions. This asymmetry, which solely results from learning about persistence, causes expected...