A fundamental preferences model of common stock returns

This article develops a new model for common stock returns. The model. assumes price changes are the complex result of investor preferences relating not only to expected future earnings growth but also to specific generic attributes that investor; take into account when deciding which stocks to buy or sell. The author develops a growth rating-utility ranking measure - predicated on acute disequilibrium being the rule rather than the exception in stock market behavior - that is shown to be a very powerful predictor function for future stock returns. He shows that the new model explains many facets of real-world stock market behavior that are still the subject of controversy in modern finance theory and provides a commonsense practical framework for portfolio management that appears to be far more powerful than any other framework based on the principles of modem finance theory.