the capital asset pricing model theory and empiricism in a recent breakthrough article richard roll i977 has shown that the value of the huge amount of empirical research which has attempted to verify the sharpe lintner capital asset pricing model capm is open to question briefly roll claims that if all the empirical investigators were to take a meanvariance efficient portfolio as the market portfolio they would get in the sample a perfect linear relationship between average security returns and betas in what is commonly known as the second pass cross section regression this perfect linear relationship is tautological it neither proves nor disproves the capm theory it is a technical result obtainable by straightforward algebra without making any assumption regarding the investors preference it is interesting to mention that in another paper published in 1977 stephen ross makes the same argument with regards to the capm and the efficiency of the market portfolio in his words the efficiency of the market portfolio and the capm are equivalent see ross i 977 p 178 the purpose of this paper is to show that empirical evidence and the investigation of investor behaviour lends support to a rejection of the capm theory in its presentform a revised formulation of the capm developed by levy i 978 provides a more suitable theoretical model in the reformulated capm the systematic risk beta plays in most cases only a negligible role in measuring the security s risk in section i we sketch a different prooof of what we consider to be roll s basic claim this proof contributes no additional theoretical results beyond what is given by roll i977 appendix corollary 6 but it is simple very short and uses no matrix algebra in section ii we derive a number of sample efficient sets and demonstrate that all efficient portfolios include short positions such results can be interpreted in one of the following alternative ways a sample variations cause this result but the capm holds and no such results would be obtained if we employed ex ante rather than ex post parameters b the empirical results are not entirely attributed to sample variations and they indeed contradict the capm in its present form since the motives for taking a short position can be explained by strong positive correlations between rates of return of various stocks e g general motors and ford we believe that this co movement of prices prevails ex post as well as

the impact of minimum trading units on stock value and price volatility we study how minimum trading unit changes on the tel aviv stock exchange impact a stock s trading activity price volatility and value the value effects are consistent with merton s 1987 model i e an increase in the investor base trading volume and a decrease in price noisiness affect stock value positively our results extend amihud mendelson and uno s 1999 tests of merton by demonstrating a clear relation between price noisiness changes and stock value changes and by showing that the response to a minimum trading unit decrease becomes less favorable and arguably even negative in the thinnest trading stocks

risk return and equilibrium an extension this study extends a recent empirical reexamination of the risk ret urn relationship by examining the possibility that an omitted size re lationship may account for the anomalous results h levy s generaliz ed capital asset pricing model provides the theoretical basis for incorporating the impact of firm size on expected return by examining the relative importance of unsystematic risk in pricing closely held securities compared to pricing widely held securities in so doing the empirical analysis also provides a test of an implication of the generalized capital asset pricing model two methodologies are used t o test the hypotheses empirically the results indicate that even thou gh size has a significant impact on the risk return relationship it apparently does not account for the anomalous results this implicati on is consistent under both methodologies copyright 1988 by the university of chicago

specialization versus diversification as a venture capital investment strategy abstract much important work has informed us of rates of return earned by venture capitalists the importance of venture capitalists to the going public process and the criteria venture capitalists use to evaluate deals this paper seeks to add to the literature by testing hypotheses based upon both the finance and strategic management literature regarding certain venture capitalist investment practices venture capitalists seek to control or manage risk driscoll 1974 macmillan siegel and subbanarasimha 1985 financing structure and investment strategy provide several means for venture capitalists to do this tools available to the venture capitalist include portfolio diversification to spread risk across different industries firms or hot cold ipo markets to minimize unsystematic or investment specific risk information sharing networking and specialization can also be used to control unsystematic risk several hypotheses are developed from these conflicting perspectives data used to test the hypotheses are derived from responses to a survey of venture capitalists three hundred surveys were mailed to venture capitalists 98 or 32 7 returned usable responses portfolio diversification is a well known means to control risk exposure by reducing unsystematic or specific risks however bygrave 1987 1988 as well as financial intermediation theorists argues that maintaining a high degree of specialization is useful for controlling risk as well as for gaining access to networks information and deal flow from other venture investors the analyses of this paper build upon bygrave s work we construct more rigorous tests to resolve the conflict between the diversification and information sharing hypotheses our hypothesis tests were usually resolved in favor of the information sharing view for example venture capitalists in the sample that were heavily involved in seed round financing were diversified across fewer numbers of firms and industries further evidence in favor of information sharing is seen in investment patterns across different financing stages diversification would imply maintaining a portfolio of investments across the different investment stages the information sharing specialization view would argue that it is best to stay focused on a single stage or several connected stages the empirical evidence from the sample once again favors the specialization perspective this research provides information of use to venture capitalists as they seek information on how best to control risk to entrepreneurs as they learn of the factors venture capitalists consider in determining their investment strategy and to academicians as such studies provide insight to general industry practice and thus help to form the basis of classroom discussion and future research endeavors

understanding local co2 emissions reduction targets abstract local commitments on climate change are often spread by international associations and city networks the most recent initiative at the european level was the signing of the covenant of mayors the covenant of mayors provides information about several indicators related to the emissions reduction plans of those cities that have signed the covenant a cross sectional regression analysis is made between the planned emissions reductions and the basic indicators analysed results show that the predicted reductions are greater in more contaminated cities and with a greater energy use per capita however the effort of the contaminated cities is less than proportional energy efficiency is focused on the containment of electrical and h c consumption the planned reductions are greater in those cities which have a greater percentage of energy consumption in the transport sector no significant differences are seen between the emissions reductions planned by the northern and southern cities energy consumption per capita is smaller in the large cities with emissions also tending to be more reduced which suggests that urbanization can generate agglomeration benefits that are environmentally effective the greater consumption of renewables is seen in small municipalities

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

market reaction to quarterly earnings announcements a stochastic dominance based test of market efficiency the use of the capm in empirical research is subject to some criticism in light of this criticism the stochastic dominance criteria are offered as an alternative research method for the examination of market efficiency the underlying assumptions of the two frameworks are discussed and the stochastic dominance technique is demonstrated via the examination of market reaction to quarterly earnings announcements during the 24 quarters commencing with october 1962 the findings are compared to those of watts watts r the time series behavior of quarterly earnings unpublished paper university of newcastle newcastle n s w 1975 quoted in watts 1978 who utilized the same data base in contrast to watts conclusion our analysis suggests that the market was efficient during the entire period examined and that no significant differences in market behavior between the first and the second 12 month periods was evident the discord may be attributed to the relative effectiveness of the two analytical tool

grassroots localisation the scalar potential of and limits of the transition approach to climate change and resource constraint this paper engages with the progressive politics of climate change and resource constraint developed by the transition movement which looks to develop a positive local politics of the transition to a low carbon economy and society at the heart of this politics is a vision of economic localisation rooted in a geographical imaginary of market towns with agricultural hinterlands consequently the question of how the transition model can be applied in urban settings has not been clear leading to the implicit assumption that urban transition initiatives are more complex and difficult in contrast this paper argues that the plasticity of transition politics means that in some cases an urban context might be more productive for the development of transition initiatives because it allows for a greater diversity of political action as well as providing a density of networks and resources that can be critical for the survival of grassroots interventions

the new urban politics as a politics of carbon control the new urban politics nup literature has helped to draw attention to a new generation of entrepreneurial urban regimes involved in the competition to attract investment to cities interurban competition often had negative environmental consequences for the urban living place yet knowledge of the environment was not very central to understanding the nup entrepreneurial urban regimes today are struggling to deal with climate change and reductions in greenhouse gas emissions carbon reduction strategies could have profound implications for interurban competition and the politics of urban development this paper explores the rise of a distinctive low carbon urban polity carbon control and examines its potential ramifications for a new environmental politics of urban development nepud the nepud signals the growing centrality of carbon control in discourses strategies and struggles around urban development using examples from cities in the us and europe the paper examines how these new environmental

wealth and portfolio composition theory and evidence we examine a survey of 6010 u s households and estimate a model for household portfolio allocation we extend the conventional portfolio choice model in order to capture the observed incompleteness of household portfolios we show that the empirical specification of the joint discrete and continuous choice that characterizes household portfolio behavior is a switching regressions model with endogenous switching we go on to examine the impact of taxes on portfolio composition using detailed survey data to calculate precisely the marginal tax rate facing each household finally we estimate wealth elasticities of demand for a range of assets and liabilities

the economic determinants of the market reaction to proposed mandatory accounting changes in the oil and gas industry a cross sectional analysis abstract this paper examines the economic reasons for the observed negative abnormal common stock performance of firms whose reported earnings and stockholders equity were negatively affected by the proposed elimination of full cost accounting in the oil and gas industry four explanations of the market effects of this mandatory accounting change are examined 1 naive investor theory 2 modified naive investor theory 3 contracting cost theory and 4 estimation risk theory these hypotheses are developed in detail and used to generate variables for a cross sectional model which explains observed return behavior the effect of the accounting change on total stockholder s equity the existence of financial contracts denominated in terms of accounting numbers and to a lesser extent firm size are shown to be important explanatory variables the importance of these variables is consistent with both the contracting cost and estimation risk theories

farm real estate pricing under risk an empirical investigation the rapid increase in farm real estate prices during the last three decades has heightened interest among agricultural economists in explaining this phenomenon even prior to the 1950s several researchers expressed concern that farm real estate prices were increasing at a faster rate than could be justified by farm income 29 technological change and government programs were evaluated for structural changes in price determination 6 13 other important explanatory variables were farm enlargement and urbanization influences 34 more recently harris and nehring 11 lee and rask 18 harris 10 and boehlje and griffin 3 explored the effects of such factors as farm size inflation and government price supports on farm real estate prices while previous research contributed to understanding farm real estate price determination several important questions remain unanswered how is the farm real estate market linked to other capital markets heady and tweeten 12 and later reynolds and timmons 30 used rate of return on common stock as an explanatory variable in their farm real estate price models however their approaches are based more on intuitive reasoning than on rigorous theoretical development how does risk affect farm real estate prices the fact that real estate is a risky investment generally was ignored in previous research 2 441 4 recently harris 10 and boehlje and griffin 3 included risk information in their analyses of factors affecting bid prices for land these studies use strong microfoundations that are not intended to directly reflect risk related linkages with other markets or sectors these issues can be addressed conceptually through capital market theory the purpose of this paper is to explore farm real estate price determination in the context of capital market theory to determine the relationship between the farm real estate

returns to farm real estate revisited barry s research on farm real estate returns suggests that when farm assets are viewed as a part of the nation s wealth portfolio returns are not persistently low as is commonly asserted in policy debates this paper extends barry s research by explicitly accounting for the effects of uncertain inflation using a broader market proxy and lengthening the sample period the results suggest farm real estate offers only slight not substantial premiums above those for systematic risk contributes little systematic risk to a well diversified portfolio and exhibits substantial risk due to uncertain inflation

does idiosyncratic risk really matter goyal and santa clara 2003 find a significantly positive relation between the equalweighted average stock volatility and the value weighted portfolio returns on the nyse amex nasdaq stocks for the period of 1963 08 to 1999 12 we show that this result is driven by small stocks traded on the nasdaq and is in part due to a liquidity premium in addition their result does not hold for the extended sample of 1963 08 to 2001 12 and for the nyse amex and nyse stocks more importantly we find no evidence of a significant link between the value weighted portfolio returns and the median and value weighted average stock volatility the intertemporal relation between risk and return has long been an important topic in asset pricing literature most asset pricing models postulate a positive relationship between a stock portfolio s expected returns and risk which is often modeled by the variance or standard deviation of the portfolio s returns however there is no agreement about the existence of such a trade off for stock market indices 1 while return volatility is an intuitively appealing measure of risk different approaches used by previous researchers suggest that no clear consensus has emerged regarding its relevance 2 whether or not investors require a larger risk premium on average for investing in a security during times when the security is more risky remains an open question

more possessions more worry abstract a common wisdom asserts that the wider the universe of assets to choose from the greater the investor s welfare we show that this is not the case in practice where parameters have to be estimated even when the estimates are unbiased surprisingly risk aversion plays a crucial role corresponding to the desirability of asset expansion by dividing investors in three groups investors with very low risk tolerance and investors with very high risk tolerance are better off with asset expansion and investors with moderate risk tolerance are worse off despite the option to refrain from investing in the additional asset

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

computing equilibrium prices for a capital asset pricing model with heterogeneous beliefs and margin requirement constraints abstract the mean variance capital asset pricing model capm is a useful mathematical tool for studying a variety of financial problems in contrast to existing work in the literature which has primarily focused on deriving analytical solutions under restrictive assumptions we propose a numerical algorithm for efficiently computing the set of equilibrium prices of a capm model with heterogeneous investors and arbitrary margin requirements we present the mathematical formulation of the capm model derive structural properties of the portfolio selection and excess demand functions and establish the asymptotic convergence of the proposed algorithm under mild conditions to illustrate the utility of the algorithm we perform sensitivity analysis on a simple example to study the impact of marginal requirements and interest rates on the resulting equilibrium prices numerical studies are also carried out to compare the performance of the algorithm with that of two other popular methods namely the fixed point method and the brand and bound algorithm

ecosystem services as technology of globalization on articulating values in urban nature the paper demonstrates how ecosystem services can be viewed and studied as a social practice of value articulation with this follows that when ecosystem services appear as objects of calculated va