https://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf

Theory of the firm: Managerial behavior, agency costs and ownership structure

https://rady.ucsd.edu/faculty/directory/valkanov/pub/classes/mfe/docs/fama_french_jfe_1993.pdf

Common risk factors in the returns on stocks and bonds

This paper introduces an ARCH model (exponential ARCH) that (1) allows correlation between returns and volatility innovations (an important feature of stock market volatility changes), (2) eliminates the need for inequality constraints on parameters, and (3) allows for a straightforward interpretation of the "persistence" of shocks to volatility. In the above respects, it is an improvement over the widely-used GARCH model. The model is applied to study volatility changes and the risk premium on the CRSP Value-Weighted Market Index from 1962 to 1987. Copyright 1991 by The Econometric Society.

Conditional heteroskedasticity in asset returns: a new approach

http://business.unr.edu/faculty/liuc/files/BADM742/Banz_sizeeffect_1980.pdf

The relationship between return and market value of common stocks

SEQUELS ARE RARELY AS good as the originals, so I approach this review of the market efficiency literature with trepidation. The task is thornier than it was 20 years ago, when work on efficiency was rather new. The literature is now so large that a full review is impossible, and is not attempted here. Instead, I discuss the work that I find most interesting, and I offer my views on what we have learned from the research on market efficiency.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.1991.tb04636.x

Efficient Capital Markets: II

Summary

In a competitive economy under certainty, inter-industry rates of return on real investment would approach equality in the long run. Stigler [141 found empirical evidence that there are significant inter-industry differ- ences in profitability rates. Fisher and Hall [4] and Cootner and Holland [3] suggested that differences in profitability among industries may be attributable to inter-industry differences in risk. If different industries are exposed to different degrees of risk, long-run inter-industry differences in profitability would be expected even in a competitive economy.



Over the period 1950–1967 this study used two-way ANOVA to test the null hypothesis that there were no persistent inter-industry differences in risk-adjusted profitability. The null hypothesis was rejected at the .001 level under four different test specifications. These findings may be viewed as an extension of Stigler's work and lend support to the hypothesis of persistent barriers to entry in the United States economy.



Our empirical findings are positive in nature. Significant and persistent differences in risk-adjusted inter-industry profitability rates were found, but no attempt was made to identify what factors influence and perpetu- ate these differences. A possible area for future research is an investigation of the relationship between risk-adjusted return and measures of concentration and barriers to entry. Such a study would presumably parallel Bain's [1] prior work.

Inter­industry profitability under uncertainty

Many important contributions to the body of theoretical literature in business finance are built upon the pioneering efforts of others. In a recent article in this Journal, Vaughn and Bennett attempt to build a risk adjusted capital budgeting framework upon foundations laid by Gordon, Miller and Modigliani, Sharpe, Solomon, and others. Unfortunately, they are building a house of straw. Their knowledge of the contributions of their predecessors is superficial, and their approach is inconsistent with some of the basic tenets of business finance.

Adjusting for Risk in the Capital Budget of a Growth-Oriented Company: Comment

Growth-oriented company: comment**

In this article, we extend the 1978 Breeden–Litzenberger method of extracting state prices from option prices, showing how portfolios of butterfly spreads can be combined with right and left tail spreads to nonparametrically extract discrete state prices from option prices. We derive how those state prices should be biased estimates of true, objective probabilities. For interest rate options, we show that the biases can vary predictably over time (sometimes too high, sometimes too low), as the correlation of interest rates with consumption and wealth has changed signs over time. Consumption betas and proper risk premiums on bonds and of their state prices are at times predictably positive and at times predictably negative. We apply our technique to provide a brief 20-year history of central bank intervention impacts in the US, UK, and Eurozone from 2003 to 2022. Movements in state prices are quite large in the Financial Panic of 2008–2009, as well as in the European Sovereign Debt Crisis of 2010–2013, with Brexit and the Trump elections in 2016, and with the coronavirus pandemic in 2020–2021. Tapering in 2013 and 2022 and liftoffs in rates in 2015 and 2022 were shown to strongly shift state price distributions back toward the symmetry of 2003–2007. We show that central banks dramatically impacted entire state price distributions, not just levels of rates.

Robert H. Litzenberger

Papers

Interindustry profitability under uncertainty

Adjusting for Risk in the Capital Budget of a Growth-Oriented Company: Comment

Growth-oriented company: comment**

Central Bank Policy Impacts on the Distribution of State Prices for Future Interest Rates, 2003–2022

Robert H. Litzenberger

Papers

Inter­industry profitability under uncertainty

Adjusting for Risk in the Capital Budget of a Growth-Oriented Company: Comment

Growth-oriented company: comment**

Central Bank Policy Impacts on the Distribution of State Prices for Future Interest Rates, 2003–2022

Interindustry profitability under uncertainty