Evidence indicates that people fear change and the unknown. We model this behavior as familiarity bias in which individuals focus on adverse scenarios in evaluating defections from the status quo. The model explains portfolio underdiversification, home and local biases. More importantly, equilibrium stock prices reflect an unfamiliarity premium. In an international setting, our model predicts t...

We consider a simple CAPM with heterogenous expectations on assets’ mean returns and homogenous expectations on the covariance of returns. In this model alpha-opportunities naturally arise in a financial market equilibrium. We show that that the hunt for alpha-opportunities is a zero-sum game and that alpha-opportunities erode with the assets under management. Moreover, it is shown that a posit...

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 ...

In this article, we focus on the estimation of the capital asset pricing model (CAPM) at different time scales for Chile’s stock market. Our sample is comprised of twenty four stocks that were actively traded on the Santiago Stock Exchange over 1997–2002. We find evidence in support of the CAPM at a medium–term horizon. We extend the literature in this area to analyze the impact of time scaling...

Capital asset pricing model (CAPM) and arbitrage pricing theory (APT) are used to assess the financial performance of eight forestry-related investment vehicles.Although results from APT support previous findings from CAPM about timberland investments, three bodies of evidence show that APT findings are more robust. The major conclusions are (a) institutional timberland investments and timberla...

The capital asset pricing model (CAPM) is often based on the Gaussianity or normality assumption. However, such an assumption frequently violated in practical situations. In this paper, we introduce symmetric CAPM considering distributions with lighter heavier tails than normal distribution. These are and belong to family of elliptical distributions. We pay special attention members related nor...

The alpha is one of the most used terms in finance. Yet, the alpha is mystical since it has no theory. It is, for example, in contradiction to the standard CAPM with homogenous beliefs. The purpose of this paper is to show that the alpha naturally arises in a financial market equilibrium when the CAPM is extended to heterogenous beliefs. We show that the hunt for alpha-opportunities is a zero-s...

In this paper we test for the inclusion of the bid-ask spread in the consumption CAPM, in the UK stock market over the time period of 1980-2000. Two econometric models are used; first, Fisher’s (1994) asset pricing model is estimated by GMM, and secondly, the VAR approach proposed by Campbell and Shiller is extended to include the bid-ask spread. Overall the statistical tests are unable to reje...