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The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on...
Persistent link: https://www.econbiz.de/10011988697
The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on...
Persistent link: https://www.econbiz.de/10011597398
The value premium is the empirical observation that low market/book “value” stocks have higher returns than high market/book “growth” stocks. In this paper, we investigate and present evidence for an “equity as a call option hypothesis” for the value premium. Volatility decreases the...
Persistent link: https://www.econbiz.de/10013034933
Presentation Slides for "Overconfidence, Arbitrage, and Equilibrium Asset Pricing" This paper offers a model in which asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against mispricing. In equilibrium, expected returns are...
Persistent link: https://www.econbiz.de/10012918741
The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for...
Persistent link: https://www.econbiz.de/10012918745
This paper studies the mismatch between asset managers' performance window and the time average of their benchmark dividend payouts, commonly referred to as duration. Our asset pricing equilibrium mechanism provides the first plausible theoretical foundation for the recent empirical findings...
Persistent link: https://www.econbiz.de/10013226474
We take a simple q-theory model and ask how well it can explain external financing anomalies, both qualitatively and quantitatively. Our central insight is that optimal investment is an important driving force of these anomalies. The model simultaneously reproduces procyclical equity issuance...
Persistent link: https://www.econbiz.de/10013149934
The value premium is the empirical observation that low market/book “value” stocks have higher returns than high market/book “growth” stocks. In this paper, we show that the profitability determined relation between risk and return is distinct for non-dividend paying businesses. High...
Persistent link: https://www.econbiz.de/10013069464
I explore an intricate interaction between a firm’s risk exposure, intangible capital accumulation, and physical capital accumulation by using a unified dynamic investment model of capital allocation. The model emphasizes both the importance of the marginal value of the intangible capital and...
Persistent link: https://www.econbiz.de/10013249319
Since the equity premium as well as the risk-free rate puzzle question the concepts central to financial and economic modeling, we apply behavioral decision theory to asset pricing in view of solving these puzzles. U.S. stock market data for the period 1960-2003 and German stock market data for...
Persistent link: https://www.econbiz.de/10009485893