Article: New facts in finance.

Introduction and summary

The last 15 years have seen a revolution in the way financial economists understand the investment world. We once thought that stock and bond returns were essentially unpredictable. Now we recognize that stock and bond returns have a substantial predictable component at long horizons. We once thought that the capital asset pricing model (CAPM) provided a good description of why average returns on some stocks, portfolios, funds, or strategies were higher than others. Now we recognize that the average returns of many investment opportunities cannot be explained by the CAPM, and "multifactor models" are used in its place. We once thought ...

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