It is a common wisdom that individual stocks’ returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected returns are proportional to the sensitivities to systematic risk factors. Fama and French (1993) three-factor model explains...

In a widely cited article, DiMasi, Hansen, and Grabowski (2003) estimate the average pre-tax cost of bringing a new molecular entity to market. Their base case estimate, excluding post-marketing studies, was $802 million (in $US 2000). Strikingly, almost half of this cost (or $399 million) is the cost of capital (COC) used to fund clinical development expenses to the point of FDA marketing appr...

The paper provides a new explanation of the low-volatility anomaly. We use Adaptive Multi-Factor (AMF) model estimated by Groupwise Interpretable Basis Selection (GIBS) algorithm to find those basis assets significantly related low and high volatility portfolios. These two portfolios load on very different factors, indicating that is not an independent risk, but it's existing risk factors. out-...

We test whether commercial property performance, proxied by real estate investment trust (REIT) prices, can inform us about bank equity prices. Using data from the United States, euro area and Japan, we show that REIT prices predict Furthermore, a “commercial factor” adds significant explanatory power to both CAPM 3-factor Fama-French model. At same time, quantile regressions this factor become...

The Anatomy of Fluctuations in Book/Market Ratios We analyze trading activity accompanying equities' year-to-year switches from " growth " (low book-to-market ratios) to " value " (high book-to-market ratios), and vice versa. We find that a large book/market ratio increase, i.e., a shift from growth to value, is accompanied by a strongly negative small-trade order imbalance. Large-trade imbalan...

Shariah compliant firms operating in an environment with little to no access a robust Islamic capital market (such as the United States (US) stock market) will exhibit consistent bias towards certain corporate financial behaviour. Does this subsequently lead skewed asset pricing behaviour? To answer question, paper investigates behaviour of multiple samples listed US compared overall convention...