We argue that the empirical evidence against the capital asset pricing model (CAPM) based on stock returns does not invalidate its use for estimating the cost of capital for projects in making capital budgeting decisions. Because stocks are backed not only by projects in place, but also by the options to modify current projects and undertake new ones, the expected returns on stocks need not sat...

We generalize the Arbitrage Pricing Theory (APT) to include the contribution of virtual arbitrage opportunities. We model the arbitrage return by a stochastic process. The latter is incorporated in the APT framework to calculate the correction to the APT due to the virtual arbitrage opportunities. The resulting relations reduce to the APT for an infinitely fast market reaction or in the case wh...

The Capital Asset Pricing Model (CAPM) is a model used to calculate the profitability that an investor must demand when making investment in financial asset, depending on risk he assuming.

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 ...

We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the st...

Capital asset pricing model (CAPM) and arbitrage pricing theory (APT) are used to assess the financial performance of eight forestry-related investment vehicles.Although results from APT support previous findings from CAPM about timberland investments, three bodies of evidence show that APT findings are more robust. The major conclusions are (a) institutional timberland investments and timberla...

The valuation of Canadian paintings is analyzed empirically. Using a sample of auction prices for major Canadian painters for the period 19682001, we run hedonic regressions to analyze the in‡uence 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 properties of Ca...

The conditional CAPM and the nonlinear APT are two important extensions of the Sharpe-Lintner constant beta CAPM. Bansal, Hsieh, and Viswanathan (1993), and Ghysels (1998) suggest that the nonlinear APT is empirically more successful than the conditional CAPM. Using a flexible nonparametric version of the conditional CAPM, we get the opposite result: the conditional CAPM does a substantially be...