Stocks are classified as part of the ownership of a company. Once individuals purchase shares, they purchase the investment in the company's earnings assets. Many large companies need funds to expand, so they sell their ownership in the form of shares. The more shares individuals purchase, the more ownership they have in the company. One of the main advantages of this investment is limited liability, in case of failure you will not be responsible for any losses. Furthermore, actions are associated with risks and benefits (Amadeo, 2011). It is essential to understand the risks and rewards associated with this type of investment. It is a fact that all investments involve some degree of risk. The most common threat in stock investing involves losing money (little, 2011). Furthermore, shares are bought and sold in a specific place called the stock exchange, which is captured by traders who speculate on the price of shares to make profits. The shares themselves are intangible assets and the annual profit paid is called dividends. Furthermore, the price of stocks depends on the supply and demand within the market. Stocks are valued in two ways, first based on cash flows, sales or earnings fundamental analysis and the second valuation is the amount one investor is willing to pay for the stock and the other investor is willing to sell shares for a particular price or supply and demand for shares. (free financial advice, 2002). Stock forecasting is one of the controversial issues in finance. This particular essay will focus on the predictability of stock market returns and market efficiency with a variety of financial and macroeconomic variables that include dividend-to-price ratio, earnings-to-price ratio, book-to-market ratio, consumption. wealth-to-wealth ratio, short-term interest rates and dividend yields....... middle of paper......andstockinvesting/f/Stocks.htmLittle http://stocks.about.com/od/ riskreward/a/ Understandrisk.htmFree financial advice http://www.free-financial-advice.net/stock-market.html#how the stock market worksGoyal.A and I. Welch, (2003), “Predicting the equity premium with dividend Ratios” , Vol.49, No. 5, pp.639-654Vol.56 journal of financeInvestopedia (2011)Fama.F, Eugene (1991), “Efficient Capital Markets: 11” Journal of Finance”, Vol.46 , No.5 , pp.1575-1617Campbell, JY, Shiller, RJ, (1988) “The dividend-price relationship and expectations about future dividends and discount factors” Review of Financial Studies 1, 195 – 22Stock and Watson (1989 ), “New Indices of Coincident and Leading Economic Indicators” Macroeconomics Annual [Online] Available at: http://rady.ucsd.edu/faculty/directory/valkanov/classes/mfe/docs/sample_1.pdf [Accessed December 5, 2011]