A Dynamic Model of Characteristic-Based Return Predictability

  title={A Dynamic Model of Characteristic-Based Return Predictability},
  author={Aydoğan Alti and Sheridan Titman},
  journal={NBER Working Paper Series},
We present a model where investors have incomplete information about the “climate of disruptive innovation,” which influences the arrival rate of new projects and the exit rate of existing businesses. Information about the disruption climate is a source of systematic risk that generates abnormal returns to value, profitability, and asset growth strategies along some sample paths. While the null hypothesis of zero return predictability is rejected at the appropriate rate if investors are… 

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