law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory …Because levered equity is an option on the firm, variations in asset idiosyncratic risk (ivol) induces a negative … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries …

This paper tackles the issue of expected market return inside an equilibrium risk-return framework that accounts of the …, an intuitive risk measure, risk horizon, is introduced with reference to the speed of convergence of an asset's mean … return to its expectations. An arbitrage argument enables us to link this risk measure to the maturity of treasury securities …