Market Expectations in the Cross-Section of Present Values

Last updated: Mar 6, 2026, 12:01:12 AM

Table of Contents

Notebooks 📖

• Kelly & Pruitt (2013): Summary Statistics and Replication Walkthrough

Pipeline Charts 📈

• Chart List

• Chart: Fama-French Factors

• Chart: Compustat Coverage

• Chart: CRSP Market Returns

Pipeline Dataframes 📊

• Dataframe: P01:ccm_link - CRSP-Compustat Link Table
• Dataframe: P01:compustat - Compustat Fundamentals
• Dataframe: P01:crsp_market_returns - CRSP Market Returns
• Dataframe: P01:crsp_monthly_stock - CRSP Monthly Stock Data
• Dataframe: P01:ken_french_25_portfolios - 25 Portfolios (5x5 Size x BM)
• Dataframe: P01:ken_french_ff_factors - Fama-French Research Factors

Pipeline Specs

Pipeline Name	Market Expectations in the Cross-Section of Present Values
Pipeline ID	P01
Lead Pipeline Developer	Zara and Dylan
Contributors	Zara, Dylan
Git Repo URL	zaranip/p01_kelly_pruitt_2013
Pipeline Web Page	Pipeline Web Page
Date of Last Code Update	2026-03-05 23:55:41
OS Compatibility
Linked Dataframes	P01:crsp_monthly_stock P01:crsp_market_returns P01:compustat P01:ccm_link P01:ken_french_ff_factors P01:ken_french_25_portfolios

Replication of Table 1 from:

Kelly, B. and Pruitt, S. (2013), “Market Expectations in the Cross-Section of Present Values.” The Journal of Finance, 68: 1721-1756. https://doi.org/10.1111/jofi.12060

Overview

This paper demonstrates that returns and cash flow growth for the aggregate US stock market are highly predictable using a single factor extracted from the cross-section of book-to-market ratios. The key methodology is partial least squares (PLS) / three-pass regression filter (3PRF).

Data Sources

Source	Description	Access
CRSP	Monthly stock returns, prices, market cap	WRDS
Compustat	Annual accounting data (book equity)	WRDS
CRSP-Compustat Link	Crosswalk between CRSP and Compustat	WRDS

Project Structure

p01_kelly_pruitt_2013/
├── src/
│   ├── settings.py              # Project configuration
│   ├── pull_CRSP_stock.py       # Pull CRSP stock data
│   ├── pull_CRSP_Compustat.py   # Pull Compustat data
│   └── generate_exploratory_charts.py
├── _data/                       # Downloaded data (gitignored)
├── _output/                     # Generated outputs
├── docs/                        # Chartbook site
├── dodo.py                      # PyDoit task runner
├── chartbook.toml               # Chartbook configuration
├── consultation.md              # Consultation meeting agenda
└── README.md

Setup

1. Create environment:

   conda create -n kelly_pruitt python=3.11
   conda activate kelly_pruitt
   pip install -r requirements.txt
   

2. Configure WRDS credentials:

   cp .env.example .env
   # Edit .env with your WRDS username
   

3. Run the pipeline:

   doit
   

Tasks

Task	Description
doit pull_CRSP_stock	Pull CRSP monthly stock data and market returns
doit pull_CRSP_Compustat	Pull Compustat fundamentals and CCM link table
doit exploratory_charts	Generate exploratory charts
doit build_chartbook_site	Build the chartbook documentation site

Team

• Zara: Data pipeline, CRSP data, chartbook setup, LaTeX report

• Dylan: Book equity calculation, PLS implementation, statistics report

References

• Paper on SSRN

• Author’s code and data

• WRDS Documentation