For over 30 years academics and practitioners have been debating the merits of the CAPM. One of the characteristics of this model is that it measures risk by beta, which follows from an equilibrium in which investors display mean-variance behavior. In that framework, risk is assessed by the...

The most widely-used measure of an asset's risk, beta, stems from an equilibrium in which investors display mean-variance behavior. This behavioral criterion assumes that portfolio risk is measured by the variance (or standard deviation) of returns, which is a questionable measure of risk. The...

Beta as a measure of risk has been under fire for many years. Although practitioners still widely use the CAPM to estimate the cost of equity of companies, they are aware of its problems and are looking for alternatives. One possible alternative is to estimate the cost of equity based on the...

Adding a stage of signal acquisition to the expected utility model shows that Bayesian updating results in a well de¯ned law of demand for financial information when asset return distributions are conjugate priors to signals such as in the gamma-Poisson case. Signals have a positive marginal...

This paper presents empirical evidence on the existence of structural breaks in the fundamentals process underlying US stock prices. We develop an asset pricing model that represents breaks in the context of a Markov switching process with an expanding set of non-recurring states. Different...