Fama and French (2002) estimate the equity premium using dividend growth rates to measure expected rates of capital gain. We use a similar method to study the value premium. From 1941 to 2005, the expected HML return is on average 6.0% per annum, consisting of an expected dividend-growth...

This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

We study the connection between momentum portfolio returns and shifts in factor loadings on the growth rate of industrial production. Winners have temporarily higher loadings than losers. The loading spread derives mostly from the high, positive loadings of winners. Small stocks have higher...

Investment-based asset pricing uses the link between stock and investment returns to tie expected returns with firm characteristics. I derive the equivalence between these two returns in the Q-framework with variable capacity utilization, proportional operating costs, irreversible investment,...

The q-theory implies that investment is a first-order determinant of the cross section of expected returns, and that optimal investment drives the external financing anomalies. Our neoclassical model simultaneously and in many cases quantitatively reproduces: Procyclical equity issuance waves;...

We conduct a comprehensive study of the cyclical movements in economic fundamentals for value and growth firms. We document that the fundamentals of value firms are more adversely affected by negative business cycle shocks than those of growth firms. The differential response between value and...

More financially constrained firms are riskier and earn higher expected returns than less financially constrained firms, although this effect can be subsumed by size and book-to-market. Further, because the stochastic discount factor makes capital investment more procyclical, financial...

No. Two related variables, the book-to-market spread (the book-to-market of value stocks minus the book-to-market of growth stocks) and the market-to-book spread (the market-to-book of growth stocks minus the market-to-book of value stocks) predict returns but with opposite signs. The value...

We use corporate bond yield spreads to gauge investors' return expectations. We then replace standard ex-post, averaged measures of return with our ex-ante return measures in asset pricing assets. We find that the market beta plays a significant role in the cross-section of returns when...