Stock return predictability and asset pricing models

Doron Avramov*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

66 Scopus citations

Abstract

This article develops an asset allocation framework that incorporates prior beliefs about the extent of stock return predictability explained by asset pricing models. We find that when prior beliefs allow even minor deviations from pricing model implications, the resulting asset allocations depart considerably from and substantially out-perform allocations dictated by either the underlying models or the sample evidence on return predictability. Under a wide range of beliefs about model pricing abilities, asset allocations based on conditional models outperform their unconditional counterparts that exclude return predictability.

Original languageAmerican English
Pages (from-to)699-738
Number of pages40
JournalReview of Financial Studies
Volume17
Issue number3
DOIs
StatePublished - Sep 2004
Externally publishedYes

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