Many previous studies document a positive relation between research and development (Ramp;D) and equity value. Though Ramp;D can increase equity value by increasing firm value, it can also increase equity value at the expense of bondholder wealth through an increase in firm risk because equity...

Single factor asset pricing models face two major hurdles: the problematic time-series properties of the ex ante market risk premium and the inability of the risk measure to account for a substantial degree of the cross-sectional variation of expected excess returns. We provide an explanation...

We present a framework for modeling and estimating dynamics of variance and skewness from time-series data using a maximum likelihood approach assuming that the errors from the mean have a non-central conditional t distribution. We parameterize conditional variance and conditional skewness in an...

Factor-based asset pricing models have been used to explain the common predictable variation in excess asset returns. This paper combines means with volatilities of returns in several futures markets to explain their common predictable variation. Using a latent variables methodology, tests do...

If asset returns have systematic skewness, expected returns should include rewards for accepting this risk. We formalize this intuition with an asset pricing model which incorporates conditional skewness. Our results show that conditional skewness helps explain the cross-sectional variation of...

Financial models are an inescapable feature of modern financial markets. Yet it was over reliance on these models and the failure to test them properly that is now widely recognized as one of the main causes of the financial crisis of 2007-2011. Since this crisis, there has been an increase in...