When observed stock returns are obtained from trades subject to friction, it is known that an individual stock's beta and covariance are measured with error. Univariate models of additive error adjustment are available and are often applied simultaneously to more than one stock. Unfortunately,...

This paper extends the mathematics developed by Merton (1972) to the limiting investment opportunity set as smaller risk assets are added. Investment opportunity sets of risky assets are well-known to be described by hyperbolas in mean-standard deviation space. In practice, the asset classes in...

This paper tests conditional capital asset pricing models in a multivariate GARCH framework employing both constant and time-varying prices of market and bond risk. Depending on the interpretation of the market portfolio, the ICAPM with one hedge portfolio or the two-factor myopic CAPM are...

Previous anomaly research may have misinterpreted corrected, for the market index, mean returns on small firms. Assuming mean-variance preferences, it is shown theoretically that corrected mean returns (i.e., market line deviations) are not indicative of the relative desirability of increasing...

Bond and stock returns have been observed in the literature to exhibit unconditional skewness and temporal persistence in conditional skewness. We demonstrate that observed persistence in conditional third central moments can be due to the spillover of conditional variance dynamics. The...