Merton (1987) predicts that idiosyncratic risk should be priced when investors hold sub-optimally diversified portfolios, but empirical research has not been supportive of the theory. An overlooked assumption in Merton (1987) is that the predictions are predicated on frictionless markets, and in...

Miller (1977) hypothesizes that dispersion of investor opinion in the presence of short-sale constraints leads to stock price overvaluation. However, previous empirical tests of Miller's hypothesis have examined the valuation effects of only one of these two necessary conditions. We examine the...

We derive a conditional CAPM in a general equilibrium model where investors face estimation-risk on mean returns, and learn from information of uncertain quality or precision. In equilibrium, the loading on market risk augments the standard beta with the random or information-dependent...

We analyze the one- to five-year post-announcement stock performance of firms that either initiate cash dividends or resume the payment of cash dividends after a hiatus in payments. Both the event-window and long-run abnormal stock returns are significantly positive, suggesting that the market...

Efficiency in the capital markets requires that capital flows are sufficient to arbitrage anomalies away. We examine the relationship between flows to a "quant" strategy that is based on capital market anomalies, and the subsequent performance of this strategy. When these flows are high, quant...

We reexamine long-term abnormal returns for portfolios sorted on governance characteristics. Firms with strong shareholder rights and firms with weak shareholder rights differ from the general population of firms and from each other in how they cluster across industries. Using tests that are...

We examine the relation between the cross-section of U.S. stock returns and foreign exchange rates during the period from 1973 to 2002. We find that stocks most sensitive to foreign exchange risk (in absolute value) have lower returns than others. This implies a non-linear, negative premium for...

An important question for bank regulatory policy is whether supervisory examinations of large commercial banking firms - institutions that are already actively followed by many investors and their private sector agents - produce useful information that is not already reflected in market prices....

Early studies find that option introductions tend to raise the price of underlying stocks. More recent research indicates post-1980 option introductions are associated with negative abnormal returns in underlying stocks. Other studies document increased short-sale activities following option...

With urban industrialization on the scale achieved by East Asian economies looking increasingly less plausible, small economies in Africa need an alternative strategic approach to long-term growth. The purpose of this paper is to identify a growth strategy with the greatest potential for small,...