We show that the external habit-formation model economy of Campbell and Cochrane ~1999! can explain why the Capital Asset Pricing Model ~CAPM! and its extensions are better approximate asset pricing models than is the standard consumptionbased model. The model economy produces time-varying expected returns, tracked by the dividend–price ratio. Portfolio-based models capture some of this variati...

We investigate intermediary asset pricing theories empirically and find strong support for intermediary book leverage as the relevant state variable. A parsimonious dynamic pricing model that uses detrended broker-dealer leverage as a price of risk variable, and innovations to broker-dealer leverage as pricing factor is shown to perform well in time series and cross sectional tests of a wide va...

In this article we have applied a numerical finite difference method to solve the Black-Scholes European and American option pricing both presented by fractional differential equations in time and asset.

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The existence of mean-variance efficient positive portfolios – portfolios with no negative weights – is a key requirement for equilibrium in the Capital Asset Pricing Model (CAPM). Brennan and Lo (2010) define an “impossible frontier” as a frontier on which all portfolios have at least one negative weight. They prove that for randomly drawn covariance matrices the probability of obtaining an im...

Article history: Received 3 August 2014 Received in revised form 27 September 2014 Accepted 24 October 2014 Available online 3 November 2014

Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other inves...

The choice of model of normal returns in event studies has been widely discussed in the literature. While researchers frequently continue to use an array of alternatives, there is currently some tendency to favour cruder but simpler meanor marketadjusted returns models. This paper presents a general-to-specific model selection framework for testing the data admissibility of the principal models...

The need for understanding the propagation mechanisms behind the recent financial crises lead the increased interest for works associated with systemic risks. In this framework, network-based methods have been used to infer from data the linkages between institutions (or companies. Part of the literature postulates that systemic risk is strictly related (if not equal) to systematic risk. In thi...