This paper deals with the CAPM-derived capital budgeting criterion, and in particular with Rubinstein’s (1973) criterion, according to which a project is profitable if the project rate of return is greater than the risk-adjusted cost of capital, where the latter depends on the project’s...

Although portfolio management didn’t change much during the 40 years after the seminal works of Markowitz and Sharpe, the development of risk budgeting techniques marked an important milestone in the deepening of the relationship between risk and asset management. Risk parity then became a...

This note contains two remarks on the traditional capital asset pricing model (CAPM) with one risk-free asset. Firstly, an elementary proof of the two-fund separation theorem is provided showing that asset-demand may become undefined if the limiting slope of the investor's indifference curves is...

This paper shows that (i) project valuation via disequilibrium NPV+CAPM contradicts valuation via arbitrage pricing, (ii) standard CAPM-minded decision makers may fail to profit from arbitrage opportunities, (iii) standard CAPM-based valuation violates value additivity. As a consequence, the...

This paper uses counterexamples and simple formalization to show that the standard CAPM-based Net Present Value may not be used for investment valuations. The reason is that the standard CAPM-based capital budgeting criterion implies a notion of value which does not comply with the principle of...

This paper tests the hypothesis that portfolio diversification can increase the threat of systemic financial risk. The paper provides first a theoretical rationale for the possibility that systemic risk may be increased by the proliferation of financial instruments that lead operators to hold...

The main conclusion of the FM study relies on the fact that the average of the slopes of 402 regressions of the monthly returns on 20 portfolios on theirs beta coefficients is positive. Considering this set of 402 slopes as a random sample drawn from the same normally distributed population, FM...

Emerging markets like Pakistan confront with the problem to validate the CAPM in its original form. Since standard form of this model has unrealistic assumptions, different non-standardized forms have been introduced by different researchers. This paper also introduces a non-standardized form of...

This paper shows that a decision maker using the CAPM for valuing firms and making decisions may contradict Modigliani and Miller’s Proposition I, if he adopts the widely-accepted disequilibrium NPV. As a consequence, CAPM-minded agents employing this NPV are open to arbitrage losses and miss...

This paper is the first to present evidence on the magnitude of derivative use by mutual funds. Using a unique data set of detailed balance sheet information on open-end mutual funds, we characterize the nature of derivative use by these funds. Most mutual funds using derivatives do so to a very...