We apply the Consumption-based Asset Pricing Model (CCAPM) of the finance literature to study the risk and return of household business assets in developing economies. Using monthly panel data from a household survey in rural Thailand, we find that higher exposure to aggregate, non-diversifiable risk, as measured by household beta or the co-movement of the return of the individual household ent...

This paper examines the relationship between option pricing models that use stochastic dominance concepts in discrete time, and the traditional arbitrage-based continuous time models. It derives multiperiod discrete time index option bounds based on stochastic dominance considerations for a risk-averse investor holding only the underlying asset, the riskless asset and (possibly) the option for ...

We generalize the CAPM to a setting where a regulator requires firms to report earnings before their shares are publicly traded but does not specify the reporting system that maps economic income into reported earnings. We show that under fairly mild conditions, a riskaverse entrepreneur (as representative of the initial owners of the firm) will endogenously choose a reporting system where repo...

We explore the impact of investment-specific technology (IST) shocks on the crosssection of stock returns. IST shocks reflect technological advances embodied in new capital goods. Using a structural model, we show that IST shocks have a differential effect on the two fundamental components of firm value, the value of assets in place and the value of growth opportunities. This differential sensi...

This paper uses cointegration to evaluate long-run foreign exchange exposure. Since this technique requires exchange rates to be nonstationary, such that purchasing power parity does not hold in the long run, the analysis focuses on recent empirical findings suggesting that real exchange rates are nonstationary particularly because of oil price changes. Hence, the paper also estimates long-run ...

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...

A consistent empirical feature of bond yields is that term premia are, on average, positive. The majority of theoretical explanations for this observation have viewed the term premia through the lens of the consumption based capital asset pricing model. In contrast, we harken to an older empirical literature that attributes the term premium to the idea that short maturity bonds are inherently m...

This study documents the asset pricing mechanism of Sharīʿah compliant securities listed on the Karachi Stock Exchange. We select the CAPM market model to test for the impact in variations of stock returns on a sample of Sharīʿah-compliant companies on ten years monthly data (2001-10). We first test the basic CAPM (Capital Asset Pricing Model) and its modified form known as the Sharīʿah-complia...

Testing the CAPM boils down to testing the mean/variance efficiency of the market portfolio. Numerous studies have examined the mean/variance efficiency of various market proxies by employing sample parameters, and have concluded that these proxies are inefficient. Shrinkage methods do not seem to help. These findings cast doubt about one of the cornerstones of modern finance. This study adopts...

The valuation of French Canadian paintings is analyzed empirically. Using a sample of auction prices for major French Canadian painters for the period 1968-2005, we run hedonic regressions to analyze the influence of various factors, including painter identity, on auction prices, as well as to construct a market price index. This index is used in a second stage analysis in which we analyze the ...