In the context of project appraisal, Ross et al. demonstrate a generic discount rate should be discouraged in practice. In theory however, a generic discount rate is justified through M&M proposition III. This paper investigates the discrepancy and finds that consistently selecting positive NPV...

Quite a heated debate has been raging in Finance Theory since the early 1990's regarding the relevance of Modern Portfolio Theory. Yet both adversaries are overlooking something very fundamental that could in fact bring them much closer. My working paper on the Market Indifference Curve provides...

A core premise of Modern Portfolio Theory is that investors utilize two parameters for their decision making process only: expected value and standard deviation. Ergo - if only to determine the fair expected return for the Market Portfolio itself - a fair price of total risk exists. Assuming...

Economic Value Added (EVA™) and competing metrics are a leitmotif for management, strategy consultants and Wall Street. Such metrics, the synthesis of M&M proposition III and the notion of residual income, form the scholarly framework on value creation. However, the empirical evidence is poor,...

The classic Modigliani & Miller propositions (M&M) are almost unanimously considered undeniable and form the basis of our paradigms on Capital Structure, Value Creation and Equity Valuation. However, here it will be illustrated the M&M analysis is fundamentally flawed within its own exact...

This paper offers a novel framework for understanding the equilibrium price of risk. Notably, it illustrates the CAPM fails under its own exact assumptions when the fair price of total risk is not (ex ante) linear. A linear Security Market Line then nevertheless remains, yet consistent with...

The CAPM derives an ex post equilibrium relationship for the price of non-diversifiable risk based on investors utilizing two criteria only when making investment decisions: expected value and standard deviation. This article investigates the ex ante and ex post state of the CAPM in a...