Economic Significance of Predictable Variations in Stock Index Returns, Journal of Finance
Knowledge of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2% of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60% of the variance of the returns on the value weighted index, whereas the average return was two basis points higher.
Breen, William, William Breen, Lawrence R. Glosten, Lawrence R. Glosten, and Ravi Jagannathan. 1989. Economic Significance of Predictable Variations in Stock Index Returns. Journal of Finance. 44(5): 1177-1189.