We develop a framework for estimating expected returns-a "predictive system"-that allows predictors to be imperfectly correlated with the conditional expected return. When predictors are imperfect, the estimated expected return depends on past returns in a manner that hinges on the correlation...

An equilibrium pricing model with time-varying conditional moments of consumption growth is used to analyze the behavior of conditional moments of stock returns for long and short investment horizons. We examine the behavior over time of estimates of the conditional means and variances of...

We find that several ex ante observable variables based on asset price levels predict ex post risk premiums on common stocks of NYSE firms of various sizes, long-term bonds of various default risks, and U.S. Government bonds of various maturities. The predictive ability is consistent over the...

Expected returns over long and short horizons are modeled using two approaches: an equilibrium asset pricing model and a vector autoregression (VAR). Empirical properties of returns that are consistent with the equilibrium model’s implications include (i) an annual "equity premium" of about...

A representative-agent pricing model with time-varying moments of consumption growth is used to analyze implications about means and volatilities of equity returns and interest rates, first-order autocorrelations of equity returns for various investment horizons, and R2’s in projections of...

In a generalized-least-squares (GLS) regression of mean returns on betas, the slope and R-squared are determined uniquely by the mean-variance location of the market index relative to the minimum-variance boundary. In contrast to ordinary-least-squares, GLS gives a zero slope only if the mean...

This paper presents a mean-variance framework for likelihood ration tests of asset pricing models. A pricing model is tested by examining the position of one of more reference portfolios is sample mean-standard-deviation space. Included are tests of both single-beta and multiple-beta relations,...