Excess returns calculated using nonstationary risk-free interest rates will also be nonstationary and this may cause an unbalanced regression problem in the estimation of Capital Asset Pricing Models (CAPM). Under such circumstances, beta coefficients could be both biased and inconsistent. The...

This paper discusses a simple testing procedure based on cointegration that can be used to assess and compare the historical performance of trading systems and investment strategies. The proposed procedure, coined the 'cointegration cumulative profit' test, is applied in evaluating technical...

This article considers the implications of volatility estimation risk in real options theory. We construct confidence intervals for critical project values and options prices. An empirical example in lease investment evaluation for an offshore petroleum tract shows that confidence intervals can...