We study the behavior and interaction of systematic and idiosyncratic components of risk in a cross-section of U.K. stocks. We find no clear evidence of a trend in any component of total risk, but we document different “regimes” in the behavior of each component of total risk, in their...

Determining the cost of equity is one of the most difficult problems in corporate finance. In this paper, we present a simple estimation example using an internet start-up company. We use public firm comparables for beta, making adjustments for leverage using Harris and Pringle’s (1985)...

Michael Powers licensed a series of domain names that he thought would allow him to create a profitable set of online tourism marketing sites. The case asks students to evaluate the feasibility of the business, given Michael’s projections. Given what they find, students are then asked to...

Introductory investments courses revolve around Harry Markowitz’s modern portfolio theory and William Sharpe’s Capital Asset Pricing Model. Nonetheless, the textbook versions of these seminal contributions tend to obscure their economic insights, focusing instead on their...

Intraportfolio correlation (IPC), a measure of portfolio diversification, is becoming increasingly popular among investment practitioners. However, despite the assertions of these adherents, IPC is far from a free lunch. Instead, it is a simplistic and flawed measure that ignores material...

This paper deals with the estimation of portfolio returns and Value at Risk (VaR), by using a class of Gaussian mixture distributions. Asset return distributions are frequently assumed to follow a normal or lognormal distribution. It also can follow Brownian motion or Geometric Brownian motion...

Disputes whether financial structure can create value or not were started more than 50 years ago with Modigliani Miller theorem. In this paper I would like to present my own view on level of debt in value creation process. What I am going to prove is that due to expansion option companies with...

This paper investigates the macroeconomic determinants of stock market prices in Namibia. The investigation was conducted using a VECM econometric methodology and revealed that Namibian stock market prices are chiefly determined by economic activity, interest rates, inflation,money supply and...

This paper examines the within-market and cross-market information content of order flow for stocks, corporate bonds and Treasury bonds in China. With daily-aggregated tick-by-tick data over three years on the Shanghai Security Exchange, we find negative cross-asset effects of order flow on...

The concept of rational performance-chasing equilibrium in recent literature is supported neither by theory nor by empirical evidence. A more accurate model of such market dynamics is based on investor confusion, which is partly driven by some active managers' performance manipulation. Unlike...