“…If this is not the case, then the forecast provides no additional information and the lagged information set, 1 I − t , is useless. This is the major difference between the risk model used in this paper and the risk models used in Grinold (1989Grinold ( , 1994, Grinold and Kahn (2000), Clarke et al (2002), Qian and Hua (2004), and Ye (2008). Of course, the assumption of stock return normality may not be valid in practice, and the return and risk models one uses are very likely misspecified, which may cause theoretically derived results not to reflect what one gets in reality.…”