According to prospect theory (Kahneman & Tversky, 1979), gains and losses are measured from current wealth, which serves as a reference point. We attempted to ascertain to what extent the reference point shifts following gains or losses. In questionnaire studies we asked subjects what stock...

The valuation of synergy is vital to the success of any merger, however, given current valuation methodologies and the complexity of the task; it is also the most challenging element of merger and acquisition pricing. Conventional valuation methods assume that sales figures and market share of...

In this paper, I have examined the relation between expected returns and measures of systematic risk stemming from macroeconomic factors studied by Chen, Roll and Ross (1986, hereafter CRR) for a different time period (1978-2007) and different formation of portfolios (based on ME and BE/ME)....

Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia> Cato Institute’s 28th Annual Monetary Conference, Washington, D.C., November 18, 2010

The authors study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. The authors present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model...

The author shows that the short-term nominal interest rate can anchor private-sector expectations into low inflation more precisely, into the best equilibrium reputation can sustain. He introduces nominal asset markets in an infinite horizon version of the Barro-Gordon model. The author then...

A test of the CAPM is developed conditional on a prior belief about the correlation between the true market return and the proxy return used in the test. Consideration is given to the effect of the proxy's mismeasurement of the market return on the estimation of the market model. Failure to...

In this paper, we address the question whether the impact of default risk on equity returns depends on the financial system firms operate in. Using an implementation of Merton's option-pricing model for the value of equity to estimate firms' default risk, we construct a factor that measures the...

It is now well known that the RBC models have enjoyed successful results in explaining the dynamics of the business cycle variables but fail to replicate similar interesting stylized facts while studying the behavior of asset prices. One line of progress for solving this shortcoming has been to...

This study explores the volatility models and evaluates the quality of one-step ahead forecasts of volatility constructed by (1) GARCH, (2) TGARCH, (3) Risk metrics and (4) Historical volatility. Volatility forecasts suggest that TGARCH performs relatively best in term of MSPE, followed by...