@techreport{NBERw10406,
 title = "New Forecasts of the Equity Premium",
 author = "Christopher Polk and Samuel Thompson and Tuomo Vuolteenaho",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "10406",
 year = "2004",
 month = "April",
 URL = "http://www.nber.org/papers/w10406",
 abstract = {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.},
}