A deep-ingrained doctrine in asset pricing says that if an empirical characteristic-return relation is consistent with investor “rationality,” the relation must be “explained” by a risk (factor) model. The investment approach questions the doctrine. Factors formed on characteristics are...

The IRR problem. As widely known, the IRR has serious flaws: (i)multiple real-valued IRRs may arise, (ii) the meaning of each IRR may be ambiguous (rate of return or rate of cost?), (iii) complex-valued IRRs may arise, (iv) the IRR is, in general, incompatible with the net present value (NPV) in...

Real options present advantages over the standard discounting methods. In this paper we analyze them briefly and examine their potential applications on information security. The applications of real options on valuation of information assets, information security investment and capital...

The neoclassical investment model matches cross-sectional asset prices both in first differences and in levels. With ten book-to-market deciles as the testing portfolios, the investment model largely matches the Tobin's Q spread and the average return spread across the extreme deciles. The...

This paper measures the size of the stock of intangible capital in Canada using newly released data on the market value of all securities in the economy. The approach taken relies on a quantitative application of the q-theory of investment to generate the quantity of capital owned by firms. I...

Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and...

This article explores the behavior of the stock market in Colombia with the information given by the Bolsa de Bogota Index (Indice de la Bolsa de Bogota, IBB). The index is analyzed from January, 1930 to December, 1998. The inflation rate covers the same period; the inflation rate as measured by...

This paper presents an economic interpretation of the optimal “stopping” of perpetual project opportunities under both certainty and uncertainty. Prior to stopping, the expected rate of return from delay exceeds the rate of interest. The expected rate of return from delay is the sum of the...

We consider a general model for an investment producing a single commodity, and, assuming that there exists a traded asset spanning the corresponding market, we prove a "verification theorem" which relates the solution of an appropriate differential equation with the investment's contingent...

The IRR problem. As widely known, the IRR has serious flaws: (i)multiple real-valued IRRs may arise, (ii) the meaning of each IRR may be ambiguous (rate of return or rate of cost?), (iii)complex-valued IRRs may arise, (iv) the IRR is, in general, incompatible with the net present value (NPV) in...