In this paper, we present the fundamental framework of the evaluation problem under which the evaluation operator satisfying some axioms is linear. Based on the dynamic linear evaluation mechanism of contingent claims, studying this evaluation rule in the market driven by fractional Brownian motions has led to a dynamic capital asset pricing model. It is deduced here mainly with the fractional ...

Knowledge management systems (KMS) and intellectual capital (IC) measurement seek to increase the knowledge assets and the knowledge activities that bring competitive advantage to organizations. However, generally KMS ignore the IC measurement. This paper presents a model for linking these issues, showing the contribution of KMS to the IC measurement and their impact to organizations value crea...

Risk adjusted performance measurement for a portfolio involves calculating the risk contribution of each single asset. We show that there is only one definition for the risk contributions which is suitable for performance measurement, namely as derivative of the underlying risk measure in direction of the considered asset weight. We also compute the derivatives for some popular risk measures in...

I construct a model of an asset market subject to search frictions, in an environment where both asset liquidity and market composition are determined endogenously. The analysis predicts that higher asset prices resulting from exogenously higher asset earnings imply: (i) a shorter search duration for sellers (higher liquidity), (ii) a shorter owner tenure before listing assets for resale (turno...

Using standard preferences for asset pricing has not been very successful in matching asset price characteristics such as the risk-free interest rate, equity premium and the Sharpe ratio to time series data. Behavioral finance has recently proposed more realistic preferences such as those with loss aversion. Research is starting to explore the implications of behaviorally founded preferences fo...

This paper considers the pricing of corporate securities of a given firm, in particular equity, when investors do not have full information on the firm’s asset value. We show that under noisy asset information, the pricing of corporate securities leads to a nonlinear filtering problem. This problem is solved by a Markov chain approximation, leading to an efficient finite-dimensional approximati...

This paper explores the ability of theoretically-based asset pricing models such as the CAPM and the consumption CAPM referred to jointly as the (C)CAPM to explain the cross-section of average stock returns. Unlike many previous empirical tests of the (C)CAPM, we specify the pricing kernel as a conditional linear factor model, as would be expected if risk premia vary over time. Central to our a...

We model conditional market beta and alpha as flexible functions of state variables identified via a formal variable selection procedure. In the post-1963 sample, beta of the value premium comoves strongly with unemployment, inflation, and price-earnings ratio in a countercyclical manner. We also uncover a novel nonlinear dependence of alpha on business conditions: It falls sharply and becomes ...

2 Basic Theory 4 2.1 Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Arbitrage, State Prices, and Martingales . . . . . . . . . . . . 5 2.3 Individual Agent Optimality . . . . . . . . . . . . . . . . . . . 8 2.4 Habit and Recursive Utilities . . . . . . . . . . . . . . . . . . . 9 2.5 Equilibrium and Pareto Optimality . . . . . . . . . . . . . . . 12 2.6 Equilibrium ...

This paper evaluates the specification errors of several empirical asset pricing models that have been developed as potential improvements on the CAPM. We use the methodology of Hansen and Jagannathan (J. Finance 51 (1997) 3), and the test assets are the 25 Fama-French (J. Financial Econom. 52 (1997) 557) equity portfolios sorted on size and book-to-market ratio, and the Treasury bill. We allow...