This note contains two remarks on the traditional capital asset pricing model (CAPM) with one risk-free asset. Firstly, an elementary proof of the two-fund separation theorem is provided showing that asset-demand may become undefined if the limiting slope of the investor's indifference curves is finite. Secondly, it is shown that an additional limiting condition on the risk aversion is generall...

In a widely cited article, DiMasi, Hansen, and Grabowski (2003) estimate the average pre-tax cost of bringing a new molecular entity to market. Their base case estimate, excluding post-marketing studies, was $802 million (in $US 2000). Strikingly, almost half of this cost (or $399 million) is the cost of capital (COC) used to fund clinical development expenses to the point of FDA marketing appr...

What is the best way to incorporate a risk premium into the discount rate schedule for a real investment project with uncertain payo¤s? The standard CAPM formula suggests a beta-weighted average of the return on a safe investment and the mean return on an economy-wide representative risky investment. Suppose, though, that the project constitutes a tail-hedged investment, meaning that it is expe...

This study documents the asset pricing mechanism of Sharīʿah compliant securities listed on the Karachi Stock Exchange. We select the CAPM market model to test for the impact in variations of stock returns on a sample of Sharīʿah-compliant companies on ten years monthly data (2001-10). We first test the basic CAPM (Capital Asset Pricing Model) and its modified form known as the Sharīʿah-complia...

Testing the CAPM boils down to testing the mean/variance efficiency of the market portfolio. Numerous studies have examined the mean/variance efficiency of various market proxies by employing sample parameters, and have concluded that these proxies are inefficient. Shrinkage methods do not seem to help. These findings cast doubt about one of the cornerstones of modern finance. This study adopts...