Discount rate variation is driven by a short run business cycle component and a longer run trend component. This leads to state variable hedging of these two components and ICAPM logic implies a three factor model for expected returns. The factors represent cash ow news, short term discount rate...

We uncover a positive relationship between firms' corporate governance quality, as measured by the degree of managerial entrenchment, and the quality of their real investment decisions. Firms whose managers are less entrenched invest more, invest more in line with their investment opportunities...

The spread in average returns between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the Chen, Roll and Ross (1986) factors. In addition, systematic risk and volatility fall sharply during large investment periods....

We study the predictability of stock returns using a pure macroeconomic measure of the world business cycle, namely the world's capital to output ratio. This variable tracks variation in expected stock returns in a group of the major industrial economies in the presence of world financial...

We ask to what extent the negative relation between investment and average stock returns is driven by risk. We show that: (i) the average return spread between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the...

The economic theory of the firm has met an exponential growth in the last decades different from the traditional neoclassical approach. In the first part of the paper we are skimming through the most spread approaches, namely the theory of incomplete contracts and evolutionary school. In the...