ciency hypothesis by Fama (1970), Fama and French (1989) argue that stock market returns are predictable. There is also evidence of the predictability in the cross section of stock returns, which casts doubt on the widely accepted CAPM by Sharpe (1964) and Lintner (1965). In particular, Fama and French (1992, 1993) report that value stocks, stocks of high book-to-market value ratio, have much h...

The mean, co-variability, and predictability of the return of different classes of financial assets challenge the rational economic model for an explanation. The unconditional mean aggregate equity premium is almost seven percent per year and remains high after adjusting downwards the sample mean premium by introducing prior beliefs about the stationarity of the price-dividend ratio and the (no...

Available online 30 April 2015 This paper tests the relation between expected excess stock returns and illiquidity risk in G7 markets. By conducting panel regressions on monthly data for 20 years, evidence shows that excess stock returns of the G7 countries are positively correlated with market illiquidity risk, but are negatively correlated with the innovation of firm-level illiquidity. Applyi...

If investors are more averse to the risk of losses on the downside than of gains on the upside, investors ought to demand greater compensation for holding stocks with greater downside risk. Downside correlations better capture the asymmetric nature of risk than downside betas, since conditional betas exhibit little asymmetry across falling and rising markets. We find that stocks with high downs...

We investigate the relation between contrarian flows, consumption growth, and market risk premium. We construct a contrarian flows measure by summing up the capital flows to stocks that go against the total flow of the aggregate market. We show that the contrarian flows are negatively influenced by the same-quarter consumption growth. During bad times, the majority of investors who are affected...