Which factors really predict asset return?

This project aims at uncovering which observable variables are associated with expected returns of assets, and hence, asset prices. The existing literature on the determinants of expected returns has uncovered hundreds of variables that seemingly predict asset returns. This number seems very high given the theoretical predictions that only a few variables should be associated with expected returns. This project aims to improve the understanding of the return predicting factors in three different ways. First, the project critically evaluates the current empirical research methods used in the literature. Second, the project critically evaluates the documented return predicting factors to find out which ones are real and truly contain information about expected returns, and which ones are spurious and appear to predict returns by chance or because of flawed methods. Third, the project aims to improve the understanding of the reasons underlying return predictability.