Empirical reports of priced foreign exchange (FX) risk raise the question of whether managers should adjust their cost of equity estimates for FX risk. To study this question, we empirically compare the cost of equity estimates of several risk-return models, including some that have explicit FX...

Evidence suggests that international capital markets are neither fully integrated nor completely segmented. There is, however, currently no general method available for computing the required return on corporate investments with such capital markets. This paper uses a model of partially...

Using a framework akin to portfolio theory in asset pricing, we introduce the concept of “political beta” to model firm-level export diversification in response to global political risk. The main implication of our model is that a firm is less responsive to changes in political relations...

This paper investigates mispricing (specifically limits to arbitrage) as an alternative to the risk-based explanation of the globalization premium documented by Barrot et al. (2019). We document that the globalization premium is positively correlated with measures of limits to arbitrage. We...

Many postulated relations in finance imply that expected asset returns strictly increase in an underlying characteristic. To examine the validity of such a claim, one needs to take the entire range of the characteristic into account, as is done in the recent proposal of Patton and Timmermann...

Many postulated relations in finance imply that expected asset returns should monotonically increase in a certain characteristic. To examine the validity of such a claim, one typically considers a finite number of return categories, ordered according to the underlying characteristic. A standard...

In this paper we propose exact likelihood-based mean-variance efficiency tests of the market portfolio in the context of Capital Asset Pricing Model (CAPM), allowing for a wide class of error distributions which include normality as a special case. These tests are developed in the framework of...

This paper analyzes the effect of environmental regulation on stock returns (as a measure of economic performance) for German energy corporations. By using event study methodology, we consider the last minute victory of the acting government in the 2002 German federal elections to the Lower...

The most relevant practical impediment to an application of the Markowitz portfolio selection approach is the problem of estimating return moments, in particular return expectations. We analyze the consequences of using return estimates implied by analysts' dividend forecasts under the explicit...

We investigate expectation formation in a controlled experimental en-vironment. Subjects are asked to predict the price in a standard asset pricingmodel. They do not have knowledge of the underlying market equilibrium equa-tions, but they know all past realized prices and their own predictions....