The question of long-run predictability in the aggregate US stock market is still unsettled. This is due to the lack of a robust method to judge the statistical significance of long-run regressions under the maintained hypothesis. By developing a spectral theory of long-run regressions with both...

This article proposes a new test to evaluate whether options are a redundant asset class. The methodology permits to test between two sets of competing option pricing models: the deterministic volatility models and the stochastic models. In the deterministic volatility framework, options are...

Long-run regression models using the trailing earnings over price ratio to predict future returns suggested by Campbell and Shiller (1988, 2001) work quite well. However, in this note we show that this variable might result in a downward biased proxy for expected future returns. Instead we...