Capital asset prices: a theory of market equilibrium under conditions of risk*
TLDR
In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.Abstract:
One of the problems which has plagued thouse attempting to predict the behavior of capital marcets is the absence of a body of positive of microeconomic theory dealing with conditions of risk/ Althuogh many usefull insights can be obtaine from the traditional model of investment under conditions of certainty, the pervasive influense of risk in finansial transactions has forced those working in this area to adobt models of price behavior which are little more than assertions. A typical classroom explanation of the determinationof capital asset prices, for example, usually begins with a carefull and relatively rigorous description of the process through which individuals preferences and phisical relationship to determine an equilibrium pure interest rate. This is generally followed by the assertion that somehow a market risk-premium is also determined, with the prices of asset adjusting accordingly to account for differences of their risk.read more
Citations
More filters
Journal ArticleDOI
The Limits of Arbitrage
Andrei Shleifer,Robert W. Vishny +1 more
TL;DR: In this paper, the authors argue that the textbook description of arbitrage does not describe realistic arbitrage trades, and moreover the discrepancies become particularly important when arbitrageurs manage other people's money.
Posted Content
A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
TL;DR: The authors developed a two-factor model of the term-structure which implies that a linear combination of any two rates can be used as a proxy for the central tendency, based on which they estimate the one-month rate which performs better than models which assume the central tendency to be constant.
Journal ArticleDOI
A Capital Asset Pricing Model with Time-varying Covariances
TL;DR: In this paper, a multivariate generalized autoregressive conditional heteroscedastic process is estimated for returns to bills, bonds, and stock where the expected return is proportional to the conditional convariance of each return with that of a fully diversified or market portfolio.
Journal Article
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
TL;DR: In this paper, the authors integrate elements from the theory of agency, property rights and finance to develop a theory of the ownership structure of the firm and define the concept of agency costs, show its relationship to the separation and control issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why and investigate the Pareto optimality of their existence.
Journal ArticleDOI
A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory
TL;DR: In this paper, a mathematical equivalence between the individual return/beta linearity relation and the market portfolio's mean-variance efficiency is discussed, which implies that every individual asset must be included in a correct test.
References
More filters
Journal ArticleDOI
Liquidity Preference as Behavior towards Risk
TL;DR: In this article, the authors derived the liquidity preference schedule from some assumptions regarding the behavior of the decision-making units of the economy, and those assumptions are the concern of this paper.