We construct unconditionally efficient asset allocation strategies that exploit return predictability of international size and momentum portfolios. The strategies achieve comparable returns to these investment assets while exhibiting much lower volatility. They largely avoid major losses by...

Recent finance research that draws on behavioral psychology suggests that investors systematically make errors in forming expectations about asset returns, and thus that investor sentiment can have predictive power for asset returns. A number of empirical studies using both market and survey...

This paper approaches the central questions of the identification and the price of risk in an international asset pricing context. We construct and use factor mimicking portfolios to obtain factor loadings for testing unconditional and conditional pricing. We use a new measure of specification...

In this paper, we evaluate specification and pricing error for the Consumption (C-) CAPM in the case where the model is optimally scaled by consumption-wealth ratio (CAY). Lettau and Ludvigson (2001b) show that the C-CAPM successfully explains a large portion (about 70%) of the cross-section of...

In this paper we study the economic value and statistical significance of asset return predictability, based on a wide range of commonly used predictive variables. We assess the performance of dynamic, unconditionally efficient strategies, first studied by Hansen and Richard (<xref>1987</xref>) and Ferson...