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This paper provides an analysis of the predictable components of monthly common stock and bond portfolio return. Most of the predictability is associated with sensitivity to economic variables in a rational asset pricing model with multiple betas. The stock market risk premium is the most important for capturing predictable variation of the stock portfolios, while premiums associated with interest rate risks capture predictability of the bond returns. Time variation in the premium for beta risk is more important than changes in the betas. Copyright 1991 by University of Chicago Press.
Ferson et al. (Mon,) studied this question.