This paper analyses the accuracy of replicating portfolio methods in predicting asset prices. In a two-period, general equilibrium model with incomplete financial markets and heterogeneous agents, a computational study is conducted under various distributional assumptions. We focus on the price...

This study extends the standard consumption-based capital asset pricing model (C-CAPM) to include two additional factors related to firm size (SMB) and book-to-market value ratio (HML). The inclusion of HML improves mainly the fit of the low book-to-market portfolios, SMB, and HML that are not...

We propose a new test based on the no-arbitrage condition that compares cross-sectional variation in equity returns to the cross-sectional variation in their conditional covariance with the discount factors. Using the multivariate generalized heteroskedasticity in mean model (MGM) to estimate...

This paper is concerned with testing the time series implications of the capital asset pricing model (CAPM) due to Sharpe (1964) and Lintner (1965), when the number of securities, N, is large relative to the time dimension, T, of the return series. Two new tests of CAPM are proposed that exploit...

This paper investigates an equilibrium model of the term structure of nominal interest rates on default-free, zero coupon bonds. In a pure exchange economy with incomplete information, a representative agent is unable to observe the expected growth rates of both exogenous real output and money...

This paper uses the exponential generalised heteroscedasticity model-in-mean (EGARCH- M) to analyse the relationship between the equity risk premium and macroeconomic volatility. This premium depends upon conditional volatility, which is significantly affected by the long bond yield, acting as a...

This paper presents an equity valuation model that employs risk-neutral valuation under stochastic interest rates along the lines of Ohlson and Feltham (1999). Closed form valuation formulae for equities are presented in a discrete time setting whereby the short term interest rate is modelled by...

Under U.S. Bankruptcy Code, equity holders can restructure different debt classes at a time. Recognizing this allows us to endogenize, in continuous time, not only the restructuring threshold but also the restructuring order of senior and junior classes. Unlike previous studies, sequential...

We examine the relation between US stock market returns and the US business cycle for the period 1960 - 2003 using a new methodology that allows us to estimate a time-varying equity premium. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the...

We examine the relation between US stock market returns and the US business cycle for the period 1960 - 2003 using a new methodology that allows us to estimate a time-varying equity premium. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the...