We introduce a framework for testing asset pricing models based on their implications for book-to-market ratios. We focus on the performance of beta pricing models, such as the Fama-French …ve-factor model. Our tests exploit the fact that book-tomarket ratios represent expectations of long-run cash ‡ows and stock returns. Imposing this relation and a given asset pricing model, we jointly estima...

A simple valuation model with time varying investment opportunities is developed and estimated. The model assumes that the investment opportunity set is completely described by the real interest rate and the maximum Sharpe ratio, which follow correlated Ornstein-Uhlenbeck processes. The model parameters and time series of the state variables are estimated using US Treasury bond yields and expec...

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...

The purpose of this paper is to show that the problem of trust relates to all three levels of financial engagement by a retail investor. (1) Engagement with the adviser who advises on financial products. (2) Engagement with the financial institutions that produce the financial products. (3) Engagement with the stock markets in which the financial products are invested. It is proposed that these...

This paper presents a test of multi-period asset pricing models using quarterly Philippine data. Using a consumption-based asset-pricing model, the study finds the rate of time preference to be 5.20 percent (on an annual basis). The estimated risk aversion coefficient of 0.043 seems to be on the low side when compared with estimates for other countries. Hansen's J-test finds favorable evidence ...