In an incomplete market with heterogeneous prior beliefs, we show public information can have a substantial impact on the ex ante cost of capital, trading volume, and investor welfare. The Pareto efficient public information system is the system enjoying the maximum ex ante cost of capital and...

Using a CCAPM-based risk-adjustment model, we perform yearly valuations of a large sample of stocks listed on NYSE, AMEX and NASDAQ over a thirty-year period. The model differs from standard valuation models in the sense that it adjusts forecasted residual income for risk in the numerator rather...