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Until recent years, most finance economists believed that expected stock returns were constant through time. This belief implied that unexpected stock returns were driven by news about future dividends. Since finance theory has little to say about the economic forces behind dividend expectations, finance economists were generally content to treat unexpected stock returns as exogenous, and to work instead on the determination of mean returns given risk aversion and exogenous variances and covariances of returns. Fama (1970) is a particularly clear survey of this traditional approach to finance. Fama (1991), a more recent survey of empirical asset pricing, reviews a large body of evidence that expected stock returns in fact vary through time. This chapter draws out the implications of time-varying expected stock returns for the way economists should think about unexpected stock returns. Section 2 shows that …