Stock and options markets can disagree about a stock's value because of informed trading in options and/or price pressure in the stock. The predictability of stock returns based on this cross- market discrepancy in values is especially strong when accompanied by stock price pressure, and it does...

Standard factor models imply a linear relationship between expected returns on assets and their factor exposures. We provide the asymptotic properties of factor-model-based expected return estimators for individual assets and show that exploiting this linear relationship leads to precision gains...