We demonstrate that in a CAPM economy Walras Law and the Tobin Separation Property characterize market demand on nite sets of prices. Consequently, for any number n there exist CAPM economies which have at least n equilibria and hence have n di erent beta pricing formulas. It is shown that the lower bound on the number of equilibria, n, is robust to pertubations of endowments.

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...

This paper derives a key monotonicity property common to all dividend signalling models: the greater the rate that dividend income is taxed relative to capital gains income, the greater the value of information revealed by a given dividend, and hence the greater the associated excess return. This monotonicity condition is tested with robust non-parametric techniques. No evidence is found to sup...

The equity premium puzzle shows that using standard parameters and setup, the Consumption-based Capital Asset Pricing Model’s (CCAPM’s) prediction of the premium associated with systematic risk is out by an order of magnitude. The object of this paper is to consider the implications of each of the broad classes of explanations of the equity premium puzzle for resource allocation, welfare and po...

This paper studies the relationship between investor risk preferences and asset returns. The paper provides direct evidence on the risk aversion of participants in a securities market. It uses the prices of lottery bonds issued by the Imperial Russian Government in 1864 and 1866 to estimate investor risk aversion and to study changes in preferences toward risk. Time variation in investor risk p...

Can consumption growth risk (or consumption beta) serve a better measure of risk than market beta? This paper answers this question by testing and comparing the performance of the traditional Capital Asset Pricing Model (CAPM) and consumption-based CAPM (CCAPM) across seven financial market sub-sectors in the emerging Taiwan stock market. The empirical performance of the CAPM is encouraging. Th...

In this paper we take up Bayesian inference for the consumption capital asset pricing model. The model has several econometric complications. First, it implies exact relationships between asset returns and the endowment growth rate that will be rejected by all possible realizations. Second, it was thought before that it is not possible to express asset returns in closed form. We show that Labad...

We put forward a general equilibrium model that links the cross-section variation of expected returns to …rms’life cycle dynamics. In the model all assets have the same exposure to short-run consumption risks, but di¤er in their exposure to long-run consumption risks (Bansal and Yaron (2004)). An econometrician who uses conditional CAPM regression to predict asset returns will obtain higher for...

We investigate the impact of measures of uncertainty on firms’ capital investment behavior using a panel of U.S. firms. Increases in firmspecific and CAPM -based measures have a significant negative effect on investment spending, while market-based uncertainty has a positive impact.