Myers (1974---‘M74') derives the Cost of Capital (CC), including the corporate-tax subsidy on borrowing, for a one-period investment project. From Miles and Ezzell (1980), this CC remains valid in multiperiod projects provided that, during the project's life, debt is continuously re-aligned...

When regressing return on variance, does a low coefficient necessarily indicate low risk-aversion? Considering CAPM tests conditional on investor sentiment, like in Yu and Yuan [2011], we find that the familiar power issue in single-equation CAPM tests is exacerbated when sentiment is high: the...

Whether high sentiment among investors is associated with lower risk aversion (Yu and Yuan [2011]) is not so clear. First, in regressions of returns on a proxy for variance, high sentiment comes with a relatively larger noise-to-signal ratio (lower power) and a bigger errors-in-the-regressor...