The CAPM is commonly used for an introduction of the equity cost in practice to calculate the corporate value, which is composed by the risk-free rate, equity market return and each respective beta. However, there is a fundamental complication between the risk, cost and return for the equity...

Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both corporate finance and valuation. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in...

While existing asset pricing studies focus on macroeconomic variables to predict stock market risk premium, we find that an aggregate index of corporate activities has substantially greater predictive power both in- and out-of sample, and yields much greater economic gain for a mean-variance...

Closed-end country funds are interesting in that they have two sets of prices for the same underlying assets – the net asset value (NAV) of the fund holdings as measured using the underlying firms' stock prices in their home markets and the fund price at which the fund trades on a U.S. stock...

The acquisition premium is an enigma. Acquirers must pay it. But why if the market price is tethered to fundamental value through an efficient market? This article advances a general theory of the acquisition premium. It postulates that the premium is payment for a capitalized asset intrinsic in...

This paper reveals a novel way of constructing the option implied RX and HML_FX risk factors by utilizing the full cross-section of the 45 G10 cross-rate options. The option implied carry factors, IEP^{2,ZC}, are highly profitable strategies that surprisingly earn both positive carry and...

The cost of capital is a fundamental concept in strategic decisions such as capital investments, capital structure, new issues, mergers and acquisitions, spin-offs and other corporate restructurings. This paper explores empirically the option-based model developed by Hsia (1991) for estimating...

Credit default swaps (CDS) introduce frictions in debt renegotiations because they alter the incentives of creditors insured with CDS to favor bankruptcy instead of restructuring debt out-of-court. Such renegotiation frictions can increase bond spreads by increasing distress resolution costs....

This paper incorporates expectations-based reference-dependent preferences into the canonical Lucas-tree asset-pricing economy. Expectations-based loss aversion increases the equity premium and decreases the consumption-wealth ratio, because uncertain fluctuations in consumption are more...

We study general equilibrium asset prices in a multi-period endowment economy when agents' risk aversion is allowed to depend on the maturity of the risk. We find horizon-dependent riskaversion preferences generate a decreasing term structure of risk premia if and only if volatility is...