We examine the implications of arbitrage in a market with many assets. The absence of arbitrage opportunities implies that the linear functionals that give the mean and cost of a portfolio are continuous; hence there exist unique portfolios that represent these functionals. The mean variance...

Under stationarity, the heterogeneous stoahastic processes are the non-ergodic ones. We show that if a distributed lag is of finite order, then its coefficients are unconditional means of the underlying random coefficients. This result is applied to linear transformations of the process. The...

This article compares two leading models of asset pricing: the capital asset pricing model (CAPM) and the arbitrage pricing theory (APT): I argue that while the APT is compatible with the data available for testing theories of asset pricing, the CAPM is not. In reaching this conclusion emphasis...

In this paper, we explore Bayesian inference in models with many instrumental variables that are potentially weakly correlated with the endogenous regressor. The prior distribution has a hierarchical (nested) structure. We apply the methods to the Angrist-Krueger (AK, 1991) analysis of returns...

The paper evaluates the usefulness of a nonparametric approach to Bayesian inference by presenting two applications. The approach is due to Ferguson (1973, 1974) and Rubin (1981). Our first application considers an educational choice problem. We focus on obtaining a predictive distribution for...

Introductory lectures on capital theory often begin by analyzing the following problem: I have a tree which will be worth X(t) if cut down at time t. If the discount rate is r, when should the tree be cut down? What is the present value of such a tree? The answers to these questions are...

Asset pricing relations are developed for a vector of assets with a time varying covariance structure. Assuming that the eigenvectors are constant but the eigenvalues changing, both the Capital Asset Pricing Model and the Arbitrage Pricing Theory suggest the same testable implication: the time...