Many studies have documented portfolio strategies that provide returns in excess of those expected, given the level of risk of the portfolio. Variables that seem to have predictive power for equity returns include the market capitalization of the firm’s equity and the ratio of the firm’s book equity to market equity (BE/ME). Firms with low market capitalization and high book-tomarket values see...

We propose a model in which real interest rates respond to both expected consumption growth and time preferences. Exposures to future consumption growth and time preference interest rate shocks are both priced relative to the Capital Asset Pricing Model (CAPM) and the Consumption Capital Asset Pricing Model (CCAPM). However, the two types of interest rate risk have different prices, and when el...

Cross-asset derivative securities are studied and a dichotomous asset pricing model (DAPM) is derived that significantly enriches the Sharpe-Lintner-Black capital asset pricing model. An assets beta is shown to be observable ex ante through the price of its cross-market call or put, and the DAPM separately predicts the assets’ expected return beta relations under the upper-market and lower-mark...

We examine the implications of shortand long-run consumption growth fluctuations on the momentum and contrarian profits and the value premium in a unified economic framework. By allowing time-varying firm cash flow exposures to the short-run and long-run shocks in consumption growth, we find the otherwise standard intertemporal asset pricing model goes a long way in generating the momentum and ...

This article investigates international stock market integration in largest (based on nominal GDP and purchasing power parity GDP) four developed namely USA, EMU, Japan and UK and two Asian emerging namely China and India international stock markets over the period June 1994 to June 2009. To model stock market integration we estimate a dynamic version of international capital asset pricing mode...

Since the inception of Capital Asset Pricing Model (CAPM), numerous empirical studies have been conducted to test its effectiveness. However, there are several disputes surrounding CAPM model's implementation and study in Chinese securities market. This paper first describes significance model testing validity Then summarizes 11 papers that include using data from Shanghai Shenzhen stock exchan...

In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically approximate equilibria for a variety of di erent speci cations for preferences, endowments and dividends and c...

This article introduces a class of distortion operators, gα (u) = Φ Φ [ ( ) ] − + 1 u α , where Φ is the standard normal cumulative distribution. For any loss (or asset) variable X with a probability distribution SX(x) = 1– FX(x), gα [SX(x)] defines a distorted probability distribution whose mean value yields a risk-adjusted premium (or an asset price). The distortion operator gα can be applied...