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 can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the stock-index...

Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the...

We document a somewhat surprising regularity: of the many countries that have used IPO auctions, virtually all have abandoned them. The common explanations given for the lack of popularity of the auction method in the US, viz., issuer reluctance to try a new experimental method, and underwriter...

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...

We evaluate the classical Cox, Ingersoll and Ross (1985) (CIR) model using data on LIBOR, swap rates and caps and swaptions. With three factors the CIR model is able to fit the term structure of LIBOR and swap rates rather well. The model is able to match the hump shaped unconditional term...

The stochastic discount factor (SDF) method provides a unified general framework for econometric analysis of asset pricing models. It has recently been pointed out that the generality of the SDF method may come at the cost of estimation efficiency. We show that there is no need for this concern....

We show that a mutual fund's quot;stock selection skillquot; computed using the Daniel, Grinblatt, Titman and Wermers (1997) procedure can be decomposed into additional components that include impatient quot;informed tradingquot; and quot;liquidity provision,quot; thereby helping us understand...

A key input to the capital budgeting process is the cost of capital. Financial managers most often use the CAPM to estimate the cost of capital for which they need to know the market risk premium. Textbooks advocate using the historical value for the US equity premium as the market risk premium....

We provide an introduction to the use of return based style analysis of Sharpe (1992) in practice. We demonstrate the importance of selecting the right style benchmarks and how the use of inappropriate style benchmarks may lead to wrong conclusions. When style analysis is applied to sector...

In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on Chi-Square statistics associated with null hypotheses that models are correct, our...