Critical Finance Review > Vol 11 > Issue 2

Dissecting Market Expectations in the Cross-Section of Book-to-Market Ratios: A Comment

Bryan Kelly, Yale University and AQR Capital Management, USA, , Seth Pruitt, Arizona State University, USA,
Suggested Citation
Bryan Kelly and Seth Pruitt (2022), "Dissecting Market Expectations in the Cross-Section of Book-to-Market Ratios: A Comment", Critical Finance Review: Vol. 11: No. 2, pp 375-381.

Publication Date: 03 May 2022
© 2022 Bryan Kelly and Seth Pruitt
Return predictionPresent value modelPartial least squaresThree-pass regression filter


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In this article:
1. Overview 
2. Change (i): Extended Sample 
3. Change (ii): Not Taking Logs of B/M 
4. Change (iii): Not Variance-Standardizing Predictors 
5. Change (iv): Timing of Predictors 
6. Overlooked Evidence in Favor of KP’s Conclusions 


Souza (2022) replicates the findings of Kelly and Pruitt (2013), then critiques their findings with alternative empirical choices. We challenge this critique, and argue that the choices of Kelly and Pruitt (2013, 2015) are the natural economic and statistical choices. The attenuation of predictability in Souza’s (2022) empirical analysis is due primarily to a number of ill-advised implementation choices. We conclude that the results of Kelly and Pruitt (2013) are notably robust in the sample following publication of their paper.