We present evidence that short-term interest rates forecast excess returns on many alternative assets: foreign exchange, stocks, bonds, and commodities. On average, a one percentage-point increase in short rates is associated with three percent lower annualized excess returns. To test whether...

This paper addresses the following basic capital budgeting question: Suppose that cross-sectional differences in stock returns can be predicted based on variables other than beta (e.g., book-to- market), and that this predictability reflects market irrationality rather than compensation for...