Under the assumptions of the Consumption-based Capital Asset Pricing Model (CCAPM), Pareto optimal consumption allocations are characterized by each agent’s consumption process being adapted to the filtration generated by the aggregate consumption process of the economy. The wealth processes of the agents, however, are adapted to the finer filtration generated by aggregate consumption and the c...

This article analyzes a dynamic general equilibrium under a generalization of Merton’s (1987) investor recognition hypothesis. A class of informationally constrained investors is assumed to implement only a particular trading strategy. The model implies that, all else being equal, a risk premium on a less visible stock need not be higher than that on a more visible stock with a lower volatility...

This paper examines the validity of the Sharpe-Linter-Black Capital Asset Pricing Model (CAPM) to stocks traded on the Barbados, Jamaica and Trinidad & Tobago Stock Exchanges. Tests of the CAPM are based on portfolio betas made up of stocks emanating from all three exchanges and are carried out on the alternative multifactor specification proposed by Fama and French (1992), extended to include ...

The paper shows that turnover proxies for firm-specific uncertainty, not liquidity risk. I show that turnover is unrelated to several alternative measures of liquidity risk and that liquidity risk factors cannot explain why higher turnover predicts lower future returns. I show that, because high turnover firms have high uncertainty, high turnover firms beat the CAPM when aggregate volatility in...

By exploiting the structural tax rate changes created by the Bush-era tax acts in 2001 and 2003, this study offers a first direct investigation of how the differential taxation of financial assets affects households’ asset location and allocation into taxable and tax-deferred accounts in a natural experimental framework. Because bonds are heavily taxed assets, relative to stocks, and tax treatm...

We study the relative risk of value and growth stocks. We find that time-varying risk goes in the right direction in explaining the value premium. Value betas tend to covary positively, and growth betas tend to covary negatively with the expected market risk premium. Our inference differs from that of previous studies because we sort betas on the expected market risk premium, instead of on the ...

Intellectual Capital (IC) has been proposed by Edvinsson and Malone (1997) as a technique for quantifying a company's intangible assets. A careful analysis can result in hundreds of variables, and extracting knowledge from these measurements can be difficult. We introduce a knowledge management technique called IC mapping that attempts to synthesize this data into a fitness landscape. Using the...

This article compares capital budgeting techniques employed in listed and unlisted companies in Brazil. We surveyed the Chief Financial Officers (CFOs) of 398 listed companies and 300 large unlisted companies, and based on 91 respondents, the results suggest that the CFOs of listed companies tend to use less simplistic methods more often, for example: NPV and CAPM, and that CFOs of unlisted com...

Under the assumption of normally distributed returns, we analyze whether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds. However, under the specific functional form suggested by Tversky and Kahneman (1992) financial market equilibria do not...