We evaluate the empirical support for a broad class of long run risk models using information in factors extracted through principal component analysis of the covariance matrix of log price dividend ratios of twenty five equity portfolios formed on Size and Book-to-Market. We identify two...

In Japan, as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index beta can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the...

In Japan, as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index beta can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the...

We demonstrate, using data for the period 1954-2003, that differences in exposure to consumption risk explains cross sectional differences in average excess returns (cost of equity capital) across the 25 benchmark equity portfolios constructed by Fama and French (1993). We use yearly returns on...

When consumption betas of stocks are computed using year-over-year consumption growth based upon the fourth quarter, the consumption-based asset pricing model (CCAPM) explains the cross-section of stock returns as well as the <link rid="b25">Fama and French (1993)</link> three-factor model. The CCAPM's performance...

A new test of a wide class of interest rate models is proposed and applied to a recently developed quantum field theoretic model and the industry standard Heath-Jarrow-Morton model. This test is independent of the volatility function unlike other tests previously proposed in the literature. It...

We investigate cost of capital, information asymmetry, and market liquidity of listed family firms vs. non-family firms in Japan. First, we find that the cost of debt is lower and the cost of equity is higher for family firms than non-family firms, but the differences are not significant. The...

The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed...

We investigate whether the activity of financial firms creates value and/or risk to the economy within the asset pricing framework. We use stock return data from nonfinancial firms listed in the first section of the Tokyo Stock Exchange. The value-weighted index that is solely composed of...

We search for common factors and/or a mispricing factor for Tokyo Stock Exchange firms. We utilize the Edwards-Bell-Ohlson model to compute the firms' fundamental value and divide this value by the firms' market price to construct a new variable called a 'value-to-price ratio' (VPR). We find...