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Fama's Ratio and the Effect of Operating Leverage on the Cost of Capital Under CAPM
Abacus. A Journal of Accounting and Business Studies, 2020The firm's operating leverage is its ratio of fixed to variable costs. It is widely understood that production settings with higher fixed costs and lower variable costs are high risk.
D. Johnstone
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Economic Modelling, 2020
© 2019 Elsevier B.V. Conventional wisdom suggests that the uncertainty of uninformed noise-traders’ sentiment deters rational traders’ arbitrage activities. However, nowadays, social media have made the public sentiment highly predictable, whereas the CAPM-motivated beta-return relation still does not hold in practice.
Wei Hu, Zhenlong Zheng
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© 2019 Elsevier B.V. Conventional wisdom suggests that the uncertainty of uninformed noise-traders’ sentiment deters rational traders’ arbitrage activities. However, nowadays, social media have made the public sentiment highly predictable, whereas the CAPM-motivated beta-return relation still does not hold in practice.
Wei Hu, Zhenlong Zheng
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Aggregation, Capital Heterogeneity, and the Investment CAPM
The Review of financial studies, 2019A detailed treatment of aggregation and capital heterogeneity substantially improves the performance of the investment CAPM. Firm-level predicted returns are constructed from firm-level accounting variables and aggregated to the portfolio level to ...
Andrei S. Gonçalves, Chen Xue, Lu Zhang
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Fama-French, CAPM, and implied cost of equity
Journal of Economics and Business, 2019This study uses U.S. implied cost of equity observations to compare the CAPM with both ex ante and ex post versions of the Fama-French three-factor model. The ex ante version is a simple theoretical model that requires mutual consistency among the factor
Dev R. Mishra, Thomas J. O’Brien
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The Journal of Finance, 1992
ABSTRACTSome equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. These bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean
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ABSTRACTSome equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. These bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean
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Company Valuation as Result of Risk Analysis: Replication Approach as an Alternative to the CAPM
Social Science Research Network, 2019Market imperfections call into question the suitability of the CAPM for deriving the cost of capital. The valuation by incomplete replication introduces a valuation concept that takes capital market imperfections into account and derives the risk ...
Werner Gleißner, Dietmar Ernst
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CAPM Failure & New CAPM Relationship
SSRN Electronic Journal, 2004The cost of equity is required (besides various other basic data) for many financial applications such as capital budgeting decisions and performance measurements. A common procedure is to use the Capital Asset Pricing Model (CAPM), which involves estimation of an expected risk premium equal to beta times the expected risk premium on the 'market ...
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Necessary Conditions for the CAPM
Journal of Economic Theory, 1997zbMATH Open Web Interface contents unavailable due to conflicting licenses.
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Annals of Operations Research
zbMATH Open Web Interface contents unavailable due to conflicting licenses.
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zbMATH Open Web Interface contents unavailable due to conflicting licenses.
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SSRN Electronic Journal, 2004
This paper reviews the recent literature on CAPM and APT, and reaches a surprising conclusion. While APT died a silent death, CAPM's progeny is alive and well! We provide a short review of the recent literature on the conditional CAPMs, intertemporal CAPMs, and higher-order Co-Moments-based CAPMs.
Sanjay K. Nawalkha, Christopher Schwarz
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This paper reviews the recent literature on CAPM and APT, and reaches a surprising conclusion. While APT died a silent death, CAPM's progeny is alive and well! We provide a short review of the recent literature on the conditional CAPMs, intertemporal CAPMs, and higher-order Co-Moments-based CAPMs.
Sanjay K. Nawalkha, Christopher Schwarz
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