Stock Return Predictability and Asset Pricing Models

62 Pages Posted: 19 Feb 2001

See all articles by Doron Avramov

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2003

Abstract

This paper 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 outperform 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.

JEL Classification: G11, G12, C11

Suggested Citation

Avramov, Doron, Stock Return Predictability and Asset Pricing Models (September 2, 2003). Available at SSRN: https://ssrn.com/abstract=260595 or http://dx.doi.org/10.2139/ssrn.260595

Doron Avramov (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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