on the exclusion of assets from tests of the mean variance efficiency of the market portfolio this paper presents an analysis of the testability of the mean variance efficiency of a market index when the returns on some components of the index itself are not perfectly observable the results are basically not supportive of the notion that mean variance efficiency is testable on a subset of the assets bounding the market share of the missing asset and its expected return is not sufficient to produce a valid test when the variance of the missing asset is bounded and the amount of wealth that might be missing is small it is possible in principle to reject correctly the mean variance efficiency of a market index in his famous critique of the asset pricing theory tests roll 7 concludes that the only testable hypothesis associated with the generalized two parameter asset pricing model of black 1 is that the market portfolio is mean variance efficient it has been emphasized by ross 10 and roll 7 that the mean variance efficiency of the market portfolio is mathematically equivalent to a positive linear relation between expected returns and the betas calculated against such a portfolio roll 7 deduces that the theory capm is not testable unless the exact composition of the market portfolio is known and used in the tests this implies that the theory is not testable unless all individual assets are included in the sample errors of type one or two might occur when a market proxy is used instead of the true market portfolio even if the ex ante true expected returns and the covariance variance matrix of the returns on all the assets are used these errors are the result of the choice of the portfolio and as roll puts it even a small misspecification of the proxy s composition can lead to the wrong conclusion the market proxy might be mean variance efficient while the true market portfolio is not and vice versa in principle however there are cases in which the above two conditions are not both necessary to reject the theory one such exception presented by roll 7 is the case in which no totally positive portfolio is efficient if any totally positive market proxy is used a large sample would reject the null hypothesis unambiguously while the market portfolio identification problem constitutes a severe limitation to the testability of the theory the question of the mean variance efficiency of a particular market index with respect to a subset of assets is a typical problem of statistical inference the mean variance efficiency can be tested directly or by

mimicking portfolios and exact arbitrage pricing we characterize the sets of mimicking positions with returns that can serve in place of factors in an exact k factor arbitrage pricing relation for a set of n assets all of the sets are k dimensional nonsingular linear transformations of each other we interpret three examples of such transformations and discuss empirical considerations we provide conditions under which the mimicking positions can be expressed as portfolios and we characterize the relation between mimicking portfolios and the minimumvariance frontier

the life cycle effects of house price changes we develop a life cycle model that explicitly incorporates the dual feature of housing as both a consumption good and an investment asset our analysis indicates that the consumption and welfare consequences of house price changes on individual households vary significantly in particular the non housing consumption of young and old homeowners is much more sensitive to house price changes than that of middle aged homeowners more importantly while house price appreciation increases the net worth and consumption of all homeowners it only improves the welfare of old homeowners renters and young homeowners are worse off due to higher lifetime housing consumption costs

arbitrage pricing with estimation risk this paper considers the arbitrage pricing theory when investors have incomplete infor mation on the parameters generating asset returns each asset in the economy may have a different amount of information available on it bayesian investors use their prior beliefs in conjunction with the total available information to assign an expected return and a set of factor betas to each asset the assigned expected returns are shown to be linear in their associated factor betas however the factor betas and prices of assets differ from those under complete information specifically risky assets with high low information are priced relatively higher lower on the other hand factor betas of high low information assets are relatively lower higher the analysis has econometric implications for testing the apt in this paper s framework maximum likelihood estimates of factor betas which are based on normality assumptions are too high low for high low information assets in addition sequentially increasing the sample size by adding new securities to a factor analysis procedure can result in the detection of apparent additional priced factors when they do not really exist

booms and busts in the uk housing market the often volatile behaviour of uk house prices between 1957 and 1994 is analysed in an annual econometric model theory suggests that financial liberalisation of mortgage markets in the 1980s should have led to notable shifts in house price behaviour the evidence supports the predictions of theory suggesting shifts took place in wealth effects as in the consumption function and that real interest rates and income expectations became more important the presence of transactions costs suggests important nonlinearities in house price dynamics the paper also contains an explicit econometric treatment of expectations demography supply spillovers from the rented sector and of composition biases in the official house price index

exact arbitrage pricing and the minimum variance frontier the author examines the relationship between the arbitrage pricing theory of ross and mean variance analysis in particular conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum variance frontier also a sufficient condition is given under which the existence of a positive minimum variance portfolio of all the assets in the economy will imply the existence of a positive minimum variance portfolio on a subset this means that rejection of the hypothesis of the existence of a positive minimum variance portfolio on a subset satisfying this condition implies rejection for the whole set a growing body of literature explores the relationship between the arbitrage pricing theory apt of ross 13 14 and the mean variance model among the early work in this direction were the papers of chamberlain and rothschild 2 and chamberlain 1 these papers examine a sequence of economies and characterize the relationship in the limit between the mean and portfolio cost functionals and the minimum variance frontier chamberlain 1 also gives a condition under which exact arbitrage pricing will hold dybvig 4 and grinblatt and titman 7 examine equilibrium models in an apt context for a finite economy they derive sharp bounds on the deviation from exact arbitrage pricing recent papers by huberman kandel and stambaugh 9 and grinblatt and titman 8 explore the relationship between the apt and the mean variance model by studying portfolios that can be used as proxies for the factors and examining the relationship these portfolios bear to the minimum variance frontier these two papers also deal with equilibrium models in spite of the number and variety of equilibrium apt models the question of the pricing of factor risk in equilibrium remains largely unexplored this paper makes some progress in addressing that issue by looking at a given equilibrium restriction and studying the constraints it imposes on the vector of factor premia itself the most familiar equilibrium restriction we might study is the central implication of the capital asset pricing model capm that the market portfolio is efficient in particular no portfolio with the same expected return as the market portfolio has a smaller variance the restriction we actually study is weaker than

the uk consumption boom of the late 1980s aggregate implications of microeconomic evidence two competing explanations of the uk consumer boom in the late 1980s are the financial liberalisation imperfect housing market hypothesis of muellbauer and murphy and the expectations hypothesis of king we use 15 years of family expenditure surveys and cohort analysis to investigate to what extent these two hypotheses agree with observed changes in consumption patterns we find that the housing markets explanation accounts for much of the increase by older cohorts but cannot be reconciled with the marked rise in expenditure levels of younger households a simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data

wealth inequality and intergenerational links previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings and that makes the richest households hold onto large amounts of wealth even during very old age i construct a quantitative general equilibrium overlapping generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability i show that voluntary bequests can explain the emergence of large estates while accidental bequests alone cannot and that adding earnings persistence within families increases wealth concentration even more i also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data

luxuries are easier to postpone a proof we show that marshallian income elasticities are proportional to frisch own price elasticities if all goods are additively separable this implies that luxuries are likely to be easier to postpone it also implies that preferences over consumption are unlikely to display a constant elasticity of substitution

the relation between mean variance efficiency and arbitrage pricing the mean standard deviation diagram has proven to be a valuable tool for understanding equilibrium asset pricing theory first introduced by markowitz 1952 1959 and tobin 1958 the diagram helps students and researchers alike to develop intuition about the capital asset pricing model capm its properties are useful for analyzing the conditions under which the market portfolio is mean variance efficient and for linking the location of the market portfolio in the diagram with the validity of the capm in addition its simple geometry seems to be the critical inspiration for roll s 1977 argument that the capm cannot feasibly be tested because the market portfolio is unobservable and because of a mathematical equivalence between the individual return beta linearity relation and the market portfolio s mean variance efficiency p 129 recent research on equilibrium asset pricing both theoretical and empirical has tended to focus on multibeta pricing models especially the arbitrage pricing theory apt this paper will show that the simple intuition derived from the

estimates of gender differences in firm s access to credit in sub saharan africa based on firm level data from 16 sub saharan african countries we show how three different measures of credit constraints lead to three different estimates of gender differences in manufacturing firms credit situation using a perception based credit constraint measure female owned firms appear relatively more constrained than male owned firms using formal financial access data we find no gender effect finally using direct information on credit constraints male owned small firms appear disadvantaged furthermore we show a strong size gradient in the gender gap for the two measures for which we find significant gender differences

joint estimation of factor sensitivities and risk premia for the arbitrage pricing theory the apt is represented as a multivariate regression model with across equations restrictions both observed and unobserved latent macroeconomic factors are included thus generalizing and unifying two previous strands of literature large portfolios representing unobserved factors are treated as endogenous and nonlinear 3sls estimates are shown to differ sharply from estimates that ignore this endogeneity using monthly stock returns and six factors we cannot reject january effects the following results are invariant with respect to the inclusioh of january effects we reject the capm in favor of the apt however we cannot reject the apt restrictions on the linear factor model most empirical work on the arbitrage pricing theory apt has followed a factor analysis approach papers by burmeister and wall 5 chan chen and hsieh 7 chen roll and ross 9 and mcelroy and burmeister 22 represent some exceptions in which measured macroeconomic factors such as unexpected inflation are used to explain asset prices in an apt or multifactor model both the factor analysis approach and the measured macroeconomic factor approach have their merits the primary advantages of using measured economic factors are 1 the factors and their apt prices in principle can be given economic interpretations while with a factor analysis approach it is unknown what factors are being priced and 2 rather than using only asset prices to explain asset prices measured macroeconomic factors introduce additional information linking asset price behavior to macroeconomic events in this exploratory paper we investigate an apt or multifactor model in which there are both measured macroeconomic factors and other nonobserved factors we impose the nonlinear across equation apt pricing restrictions exactly by using three multivariate estimation methods iterated nonlinear weighted least squares itnlwls iterated nonlinear seemingly unrelated regressions itnlsur and iterated nonlinear three stage least squares itnl3sls see gallant 13 and discussion below the appropriate estimation method depends upon alternative assumptions about the error terms nonsystematic risk in the asset returns equations the primary objective of this work is to investigate whether or not certain apt tests are sensitive to these alternative error assumptions the details of which are given in the text our focus is on the interrelation

family labor supply and asset returns abstract we study how shocks to wages and asset prices affect consumption and labor supply decisions of two earner households in a life cycle framework with housing and flexible preferences we provide a micro foundation of the wealth effects on consumption and labor supply we find evidence for non separability between non durable consumption housing services and hours of work the results also highlight the importance of family labor supply in understanding how households respond to shocks to financial and housing markets

the stock market housing and consumer spending a survey of the evidence on wealth effects abstract this paper examines the time series and micro econometric evidence on the relationship between stock and house prices and consumer spending the time series studies distinguish between short run and long run links between consumption income and wealth they allow us to identify which variables adjust to restore the long run equilibrium in the case of a shock and to determine the time taken by the adjustment process the micro econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses of direct wealth effect common causality and collateral channel that have been proposed to explain this relationship the relationship between wealth and consumer spending appears to be strong but there is some disagreement as to its size and nature furthermore there appear to be some important differences across countries which should be allowed for by policy makers when appraising the policy implications of a change in asset prices

a model of housing in the presence of adjustment costs a structural interpretation of habit persistence building on the model of sanford j grossman and guy laroque 1990 this paper provides a model of household consumption and portfolio allocation which incorporates the role of housing as both a consumption good and as a component of wealth the model captures the following features of the household s problem a utility depends probably nonseparably on two distinct goods nondurable consumption and housing b nondurable consumption can be adjusted cost lessly but housing is subject to an adjustment cost c households face housing price risk in the sense that the relative price of housing varies over time and d in addition to the house the household can invest in a wide variety of financial assets this single reasonably tractable model generates testable implications for portfolio allocation risk aversion asset pricing and the dynamics of nondurable consumption because the original grossman and laroque model considers a utility function in which the durable good is the sole argument and thus abstracts completely from nondurable consump tion their analysis cannot address either the potential spillover effects of the adjustment costs of the durable good on the dynamics of nondurable consumption or the implications for portfolio allocation of housing risk arising from variation in the relative price of housing in addition to generating implications for issues on which the original grossman and laroque model was silent the housing model delivers a strikingly different message concerning asset pricing that is in contrast to the grossman and laroque result that the consumption based capital asset pricing model consumption capm fails the housing model implies that the consumptioncapm holds we assume that the household incurs an adjustment cost when altering the holding of the dura ble good or house although financial assets can be bought and sold costlessly consumption of the nondurable good can also be adjusted costlessly when choosing a new house the consumer takes into account the fact that the consumption of housing services will be constant at the new level until the subsequent stopping time when it is again worthwhile to incur the adjustment cost thus the home purchase decision is endogenous and fully rational but because of the adjustment cost infrequent in this continuous time setting the household s decision process has a recursive structure at each instant the household first decides whether it is optimal to sell the house immediately on those rare occasions that it is optimal to incur the adjustment cost the household sells the old house and buys a new one instantaneously if the household decides that it is not optimal to sell the house immediately it then determines its optimal holdings of financial assets and optimal level of nondurable consumption conditional on the current housing stock in essence because of the adjustment costs associated with the durable good the current

how do consumers respond to house price declines abstract movements in house prices and consumer spending are closely correlated in many developed nations much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints this paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the united kingdom 30 of households report they would cut back consumption as a direct response to house price falls households who reported they were borrowing constrained were much more likely to report they would cut consumption

booms and busts consumption house prices and expectations over much of the past 25 years house price and consumption growth have been closely synchronized three main hypotheses for this have been proposed increases in house prices raise household wealth and so their consumption house price growth reduces credit constraints by increasing the collateral available to homeowners and house prices and consumption are together influenced by common factors using microeconomic data we find that the relationship between house prices and consumption is stronger for younger than older households contradicting the wealth channel we suggest that common causality has been the most important factor linking house prices and consumption

informality and credit constraints evidence from sub saharan african mses abstractthe attributes of micro and small enterprises mses influencing access to credit in particular the level and role of firm informality are analysed in the article the puzzle is the push for mses to join the formal sector and the tug to avoid the extra burden it places on the firm it is important to know more clearly what forces are at work and the sources of the causal effects this study uses data from the world bank enterprise surveys for five low income countries lics in sub saharan africa the method is empirical and as we find informality to be endogenous to credit constraints an instrumental variable approach is estimated further to address the possibility of reverse causality an instrument for the informality variable is required not registered with inland revenue tax office is the chosen instrument variable the findings reveal that as the probability of a firm operating in the formal sector increases there is greater access to external credit the causality relationships are

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

is the uk balance of payments sustainable the uk current account deficit john muellbauer and anthony murphy the uk has a large and persistent current account deficit policy makers argue that the deficit is easily financed temporary and therefore not a sign of structural weakness we examine the conditions in which it is appropriate for a country to overspend its current income with the intention of repaying loans out of future income these include an increase in international capital mobility larger net holdings of foreign assets and expectations of faster productivity growth all three apply to the uk so official reasoning is in part correct even so for several decades there has been a trend deterioration of uk trade performance most markedly in manufacturing and we detect no underlying improvement in the 1980s we highlight structural deficiencies in both demand and supply on the demand side we show the importance of rising house prices and easier consumer credit in fuelling the consumer boom to an unwarranted extent this we trace to unjustifiable subsidies to house ownership on the supply side we stress vastly inadequate investment in skill formation education and physical capital these structural deficiencies lead us to a less optimistic view than official policy we draw the policy lessons for the uk and consider whether continental europe will face similar problems as financial markets are liberalized

decomposing the wealth effect on consumption we decompose the wealth effect on consumption into two components first we distinguish between exogenous and endogenous wealth changes second we distinguish between anticipated and unanticipated exogenous changes we estimate the impact of exogenous components using data from the 2008 2010 panel of the italian survey of household income and wealth the wealth effect is about 3 cents per unexpected euro increase in wealth and driven by house price changes the consumption response to anticipated changes in wealth is of similar magnitude and also driven by housing we show that these findings are consistent with binding borrowing constraints

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

factor pricing in a finite economy abstract prior theoretical derivations of the arbitrage pricing theory apt bound an aggregate measure of the deviation of mean asset returns from that predicted by a linear pricing equation it is conceivable given this bound that some assets might be badly mispriced by the model in this paper a more intuitive derivation of the factor pricing equation is presented which describes the deviation on an asset by asset basis the deviation is shown to be small for assets in a realistic finite economy and is arbitrarily close to zero for those assets with arbitrarily small size relative to aggregate wealth it follows that the linear pricing equation provides a good approximation for the mean returns of all traded assets

access to credit by firms in sub saharan africa how relevant is gender the literature on the determinants of firms financing constraints has paid little attention to gender as a determinant of access to finance using data for 34 342 firms from 90 developing countries the paper analyzes the determinants of firms financing constraints and assesses whether female owned firms are more financially constrained than male owned businesses the results show that female owned firms in sub saharan africa are more likely to be financially constrained than male owned firms but there is no gender gap in other developing regions the gender gap in sub saharan africa is robust to variations in specifications and econometric estimation procedures

the number of factors in security returns both factor analysis of security returns and the analysis of eigenvalues seem to indicate that a market factor explains the major part of security returns we find that such evidence is consistent with an economy where there are in fact k equally important priced factors eigenvalue analysis in the context of such an economy will lead an investigator to the false inference that the one important factor is the return on an equally weighted market index this paper examines a particular exact k factor economy where each of the k factors is priced and contributes equally on average to the variance of returns we show analytically that for such an economy the approximate factor solution identifies the first factor as the return on an equally weighted market index and would lead to the inference that the remaining h 1 factors are not priced using a cross section regression technology our particular model is consistent with existing empirical work that has studied the number of factors in security markets these results suggest an important caveat to the interpretation of approximate factor solutions in an apt or multibeta pricing context one might also infer a capm bias in tests of the apt using the factor analysis technology on a more positive note the results suggest a simple rotation of the factor analysis solution that will lead to more powerful tests of the asset pricing relations to motivate this study consider the fact that the single factor market model suggested by markowitz 1959 and developed by sharpe 1963 remains one of the most popular empirical models of the return generating process the widespread acceptance of this model owes much to the work of king 1966 through a seven factor analysis of return data he concludes that one factor explains a large percentage of the variance of stock prices a factor on which each security tends to weight positively he interpreted this result to mean that there exists a basic market factor in operation which has a major effect on all securities this work supported the development of empirical research into the capital asset pricing model the model has been extensively applied in the event study context

tightening belts to buy a home consumption responses to rising housing prices in urban china abstract this paper measures the impact of housing price changes on household consumption at the city level using the universe of credit and debit card transactions in china from 2011 to 2013 in sharp contrast to the literature on the us housing market our analysis shows a large and negative housing price elasticity of consumption a 10 increase in housing prices would lead to a 9 reduction in non housing spending we argue that the negative elasticity is driven by the combination of a strong investment incentive in housing and heavy borrowing constraints faced by households this finding is corroborated by the fact that households increase their savings as housing prices increase our analysis suggests that the negative impact of housing price increases on consumption was an important factor behind the low growth rate in household consumption relative to the growth of disposal income during the sample period

wealth shocks unemployment shocks and consumption in the wake of the great recession we use data from the 2009 internet survey of the health and retirement study to examine the consumption impact of wealth shocks and unemployment during the great recession in the us we find that many households experienced large capital losses in housing and in their financial portfolios and that a non trivial fraction of respondents have lost their job as a consequence of these shocks many households reduced substantially their expenditures we estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3 3 percentage points respectively in addition those who became unemployed reduced spending by 10 percent we also distinguish the effect of perceived transitory and permanent wealth shocks splitting the sample between households who think that the stock market is likely to recover in a year s time and those who don t in line with the predictions of standard models of intertemporal choice we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks

the effect of the financial crisis on the retirement plans of older workers in england this letter revisits the question of how wealth shocks influence retirement behaviour exploiting the dramatic changes in uk asset prices between 2008 and 2009 as a source of such shocks we find no evidence that the wealth shocks arising from this recent financial crisis affected the retirement plans of older workers in england

positively weighted portfolios on the minimum variance frontier duality theory is employed to provide necessary and sufficient conditions for portfolios on the minimum variance frontier to have positive investment proportions in all assets these conditions involve the feasibility of portfolios that have non negative correlation with all assets and positive correlation with at least one using these results several qualitative results concerning the signs of investment proportions in efficient portfolios are proved it is argued that the conditions that ensure all positive weights in efficient portfolios are intuitively compelling and are not unique to the capm with large numbers of assets however the signs of weights in minimum variance portfolios can be very sensitive to slight departures from these conditions due to for example sampling error the behavior of the minimum variance frontier is of general concern to portfolio theory and plays a central role in the study of asset pricing an unresolved question in the theory of the minimum variance frontier involves when it will contain portfolios with positive weights on all assets this paper addresses that question we show that the conditions that ensure positive investment proportions in efficient portfolios have by farkas lemma a simple dual this dual or alternative system of inequalities puts conditions directly on the variances covariances and means of the returns and these conditions can be interpreted intuitively this contrasts with simply considering the first order conditions for variance minimization since these involve the inverted covariance matrix with a large number of assets it can be difficult to translate one s intuitive sense about how assets covary into statements about the inverse of the covariance matrix the duality conditions we derive involve the existence of portfolios that are positively or negatively correlated with all assets indeed we show that a necessary and sufficient condition for no portfolio on the frontier to have all positive weights is the feasibility of an arbitrage or hedge portfolio with weights that sum to zero that has an expected payoff of zero and has non negative correlation with all assets the duality conditions also make it easy to construct examples of the types of covariability that permit or preclude positive investment proportions on all assets in frontier portfolios there are at least three apparent reasons for interest in the signs of weights

the spending and debt response to minimum wage hikes abstract immediately following a minimum wage hike household income rises on average by about 250 per quarter and spending by roughly 700 per quarter for households with minimum wage workers most of the spending response is caused by a small number of households who purchase vehicles furthermore we find that the high spending levels are financed through increases in collateralized debt our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock jel d12 d14 d91 j38

houses as atms mortgage refinancing and macroeconomic uncertainty we estimate a structural model of household liquidity management in the presence of long term mortgages households face counter cyclical idiosyncratic labor income uncertainty and borrowing constraints which aect optimal choices of leverage precautionary saving in liquid assets and illiquid home equity debt repayment mortgage renancing and default taking the observed historical path of house prices aggregate

access to finance in sub saharan africa is there a gender gap we show the existence of an unconditional gender gap in sub saharan africa however when key observable characteristics of the enterprises or individuals are taken into account the gender gap disappears in the case of enterprises we explain our finding with differences in key characteristics and a potential selection bias in the case of individuals the lower use of formal financial services by women can be explained by gender gaps in other dimensions related to the use of financial services such as their lower level of income and education and by their household and employment status

consumption responses to a large shock to financial wealth evidence from italy we estimate marginal propensities to consume from wealth shocks for italian households early in the great recession large asset price shocks in 2007 2008 underpin instrumental variables a euro fall in risky financial wealth resulted in cuts in annual total non durable consumption of 8 5 9 5 5 5 7 cents we find small effects on food spending counterfactuals indicate financial wealth effects were relatively important for consumption falls in italy in 2007 08 the estimated effects are consistent with a simulated lifecycle model that captures the wealth shock also consistent with the model are findings of stronger wealth effects for agents who were pessimistic about stock returns

an explicit bound on individual assets deviations from apt pricing in a finite economy abstract ross s arbitrage pricing theory apt is a tractible and reasonable alternative to the mean variance model nonetheless understanding of the theory has been obscured by the complexity of the sequence economy models used for motivation by contrast we give a simple and direct derivation of the apt in a finite economy using an explicit bound on the deviations from apt prices across assets a coarse calculation shows that theoretical deviations from apt pricing are negligible in our economy

yes the apt is testable the arbitrage pricing theory apt has been proposed as an alternative to the meanvariance capital asset pricing model capm this paper considers the testability of the apt and points out the irrelevance for testing of the approximation error we refute shanken s objections including his assertion that roll s critique of the capm is applicable to the apt we also explain the testability of the apt on subsets and we explore the relationship between the apt and the capm the arbitrage pricing theory apt has been the subject of extensive research efforts since it was introduced by ross 36 37 the research has included theoretical papers and a growing empirical literature 2 nonetheless there seems to be some confusion in the literature about the relation between the theoretical underpinnings of the apt and its empirical tests this paper is an attempt to alleviate the confusion to illustrate the issues and to provide a focus section i of this paper is devoted to examining and refuting some points raised in shanken 40 which considers the testability of the apt the underlying premise of the apt is that asset returns ri are generated by a factor model of the form

the myth of female credit discrimination in african manufacturing abstractwe examine credit constraint differentials between male and female manufacturing entrepreneurs using firm data from 16 sub saharan africa countries small enterprises owned by female entrepreneurs are less likely to be credit constrained compared to their male counterparts while this is reversed for medium sized enterprises a generalised oaxaca blinder decomposition shows that the gap is predominantly a pure gender effect we argue that this finding is mainly due to female favouritism in loans to micro and small firms because the gap is reversed for medium sized enterprises and because we find no sign of superior female entrepreneurial performance in observable indicators

shocks stocks and socks smoothing consumption over a temporary income loss we investigate how households in temporarily straitened circumstances due to an unemploy ment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance ui benefit our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non durable goods the theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables we then present an empirical analysis based on a canadian survey of workers who experienced a job separation exploiting changes in the unemployment insurance system over our sample period we show that cuts in ui benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures our empirical strategy allows that these expenditures may be non separable from employment status the effects we find are particularly strong for households with no liquid assets before the spell started these qualitative findings are in precise agreement with the theoretical predictions jel d11 d12 d91 j65 2009 by the european economic association

house price shocks negative equity and household consumption in the united kingdom we examine the impact of unanticipated housing capital gains on consumption behavior using data from the british household panel survey and county level house price data we condition the models on household financial expectations and on household real financial capital gains imputed from the family resources survey we find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0 01 omitting the measure of financial expectations biases the results upward we find little evidence of heterogeneity in responses of young and old homeowners but differences between owners and renters we also find asymmetric behavior between house price rises and falls and a disproportionate impact on saving if the household had negative housing equity at the start of the period jel d91 e21 r31 c 2010 by the european economic association

stock market wealth and consumption this paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending it presents data on the distribution of corporate stock ownership based on the 1998 survey of consumer finances it also uses time series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate the wealth effect it concludes that in the year after a change in stock market values consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

do house prices drive consumption growth the coincident cycles of house prices and consumption in the uk this paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption the model includes price and earnings shocks estimated from data the latter including aggregate and idiosyncratic components and incorporates realistic features of the uk mortgage market we simulate the model using more than 30 years of realized shocks and under counterfactual scenarios our results confirm the intuition of earlier studies house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement