Title: New forecasts of the equity premium
Description: "If investors are myopic mean-variance optimizers, a stock's expected return is linearly related to its beta in the cross section.  The slope of the relation is the cross-sectional price of risk, which should equal the expected equity premium.  We use this simple observation to forecast the equity-premium time series with the cross-sectional price of risk.  We also introduce novel statistical methods for testing stock-return predictability based on endogenous variables whose shocks are potentially correlated with return shocks.  Our empirical tests show that the cross-sectional price of risk (1) is strongly correlated with the market's yield measures and (2) predicts equity-premium realizations especially in the first half of our 1927-2002 sample"--National Bureau of Economic Research web site.
Subjects: Econometric models, Equilibrium (Economics), Mathematical models, Prices, Rate of return, Risk management, Stocks