The Monetary Control Act of 1980 requires the Federal Reserve System to provide payment services to depository institutions through the twelve Federal Reserve Banks at prices that fully reflect the costs a private‐sector provider would incur, including a cost of equity capital (COE). Although Fama and French (1997) conclude that COE estimates are “woefully” and “unavoidably” im...

This article provides an empirical investigation into the validity of the production-based capital asset-pricing model (P-CAPM) in the Japanese asset markets during the period 1980-1997. Several methodologies are used to test the P-CAPM, which include the GMM test of the Euler equations, the volatility bound test, the mispricing test, and the test of the ability of stock and investment returns ...

Emerging markets provide a formidable challenge to current asset pricing theory. The reason that emerging market do not obey standard asset pricing paradigms can be traced to the lack of complete market integration of many of these markets. Importantly, to understand both the cross-section of expected returns as well as the evolution of expected returns through time in these markets, it is nece...

The discussion papers published in this series represent the authors' personal opinions and do not necessarily reflect the views of the Deutsche Bundesbank. Reproduction permitted only if source is stated. ISBN 3–935821–02–6 The capital-asset-pricing model (CAPM) is one of the most popular methods of financial market analysis. But, evidence of the poor empirical performance of the CAPM has accu...

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...

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...

By exploiting the structural tax rate changes created by the Bush-era tax acts in 2001 and 2003, this study offers a first direct investigation of how the differential taxation of financial assets affects households’ asset location and allocation into taxable and tax-deferred accounts in a natural experimental framework. Because bonds are heavily taxed assets, relative to stocks, and tax treatm...

The observed patterns of equity portfolio allocation around the world are at odds with predictions from a capital asset pricing model (CAPM). What has come to be called the “home-bias” phenomenon is that investors tend to hold a disproportionately large share of their equity portfolio in home country stocks as compared with predictions of the CAPM. This paper provides an explanation of the home...

The CAPM as the benchmark asset pricing model generally performs poorly in both developed and emerging markets. We investigate whether allowing the model parameters to vary improves the performance of the CAPM and the Fama-French model. Conditional asset pricing models scaled by conditional variables such as Trading Volume and Dividend Yield generally result in small pricing errors. However, a ...