an empirical examination of the implications of arbitrage pricing theory abstract this paper presents a comprehensive set of tests of the implications of the arbitrage pricing theory we find unlike previously reported results a very limited relationship between the expected returns and the covariance factor loadings measures of risk furthermore unique variance measures of risk while generally making only small contributions to the explanation of asset returns turn out to be significant about as frequently as the coveriance measures of risk which is inconsistent with the arbitrage pricing theory model the intercept tests are more mixed but provide only limited support to the model

on the number of factors in the arbitrage pricing model recent theory has demonstrated that the arbitrage pricing model with k factors critically depends on whether k eigenvalues dominate the covariance matrix of returns as the number of securities grows large the purpose of this paper is to test whether sample covariance matrices can be characterized as having k large eigenvalues using all available data on the 1983 crsp tapes we compute sample covariance matrices of returns in sequentially larger portfolios of securities analyzing their eigenvalues we find evidence that one eigenvalue dominates the covariance matrix indicating that a one factor model may describe security pricing we also find that for values of k larger than one there is no obvious way to choose the number of factors nevertheless we find that while only the first eigenvalue dominates the matrix the first five eigenvalues are growing more distinct arbitrage pricing theory apt as originally developed by ross 22 23 is built on the twin assumptions of no arbitrage opportunities in the capital market and a linear relationship between actual returns and k common factors the principal hypothesis of the model is that expected returns should be linearly related to the weights of the common factors in the assumed linear process in every test of the model the focus has been to use factor analysis to extract k factors from sample covariance matrices and then to test the hypothesis by regressing returns or average returns against the factor loadings of the common factors most previous tests have either assumed that the number of factors is equal to some predetermined number or have estimated k simultaneously with estimation of the factor loadings thus existing tests of the apt are joint tests of the apt pricing result and an assumed or estimated number of factors the question of how many factors are important has not been addressed separately from the pricing tests because the apt pricing result is the significant prediction of a theory which has little to say about the value of k nevertheless crosssection linear models have been a central part of financial economics and it is clearly important to know at least the approximate number of factors which will be significant in such regressions particularly given the computational difficulties of large scale factor analysis furthermore dhrymes friend and gultekin 6 report that the number of factors needed for standard chi squared tests increases university at buffalo suny i am in debt to donald bosshardt gary chamberlain thomas ho richard roll lemma senbet mark zmijewski and the participants in finance workshops at the universities of michigan wisconsin and buffalo for their extensive comments nevertheless i am solely responsible for what remains this paper would not have been started without the unselfish cooperation of jay leavitt director of academic computing university at buffalo suny who designed the eigenvalue algorithm which i used i am also grateful for partial financial support and lavish computer funds from the school of management and for the expert programming assistance provided by ravi shukla

a note on factor analysis and arbitrage pricing theory abstract this paper examines some theoretical and empirical properties of factor analysis and spells out their implications for arbitrage pricing theory apt doubts on the appropriateness of conventional factor analytic procedures for testing apt are raised on theoretical as well as empirical grounds

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

assessing the financial performance of forestry related investment vehicles capital asset pricing model vs arbitrage pricing theory capital asset pricing model capm and arbitrage pricing theory apt are used to assess the financial performance of eight forestry related investment vehicles although results from apt support previous findings from capm about timberland investments three bodies of evidence show that apt findings are more robust the major conclusions are a institutional timberland investments and timberland limited partnerships have a low risk level and excess returns b forestry industry companies have not earned risk adjusted returns and the performance of medium forest industry firms is worse than that of large firms c stumpage price does not resemble the return generation process of timberland investments and d lumber futures have little excess return copyright 2001 oxford university press

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

monetisation of external socio economic costs of industrial production a social lca based case of clothing production abstract the purpose of this study is to benchmark production processes and production chains of clothing products by means of social life cycle assessment s lca in this paper we present the socio economic costs s eco costs method for monetisation of external socio economic burden for workers the method is applied to six cases of garment production chains the s eco costs are the marginal prevention costs to reach a sustainable level the performance reference point prp for wages and are the monetary compensation costs beyond the prp to account for unacceptable exploitation of workers the s eco costs in include five sub indicators proposed as a base line for several social issues in s lca minimum acceptable wage based on minimum wages in rich countries and statistics on economic migrants child labour forced labour not able to attend school extreme poverty derived from world bank absolute poverty line excessive working hours forced labour involuntary occupational safety and health based on statistics of ilo these s eco costs have been calculated for cotton t shirts and pairs of jeans for three garment production chains usa europe western w india bangladesh asian a china india bangladesh asian best practice abp revealing the hotspots in these chains and enabling benchmarking the total results for the s eco costs of t shirts are w 0 05 a 1 46 and abp 0 33 the results for the jeans are w 0 38 a 12 56 and abp 2 67 the most important hotspots are in the cotton fields in india and the garment production phase in bangladesh the authors hope that the proposed system will inspire others in the field of s lca to proceed with the development of quantitative indicator systems

some results in the theory of arbitrage pricing this paper derives a stronger version of huberman s recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model it must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals this result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under huberman s bound some applications to empirical tests and performance measurement are also discussed the arbitrage pricing theory is one of several financial pricing models which attempts to explain the cross sectional variation in expected returns on assets in certain respects it is similar to the capital asset pricing model but there are both substantive and subtle differences one of the key advantages of the apt is that it derives a simple linear pricing relation approximating that in the capm without some of the latter s objectionable assumptions perhaps the key disadvantage of the apt is that it provides no clues as to what might be important factors nor as to how to interpret the factor premiums which appear in the pricing equation this paper serves several purposes after reviewing the linear factor model formulation in section i it derives in section ii a stronger version of huberman s 9 recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals this relation must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not a linear factor model with uncorrelated residuals is the appropriate returns generating mechanism section iii specializes this result by eliminating the effects of residual covariances and compares the results here to those of previous apt models when applied to the standard linear factor model with uncorrelated residuals this new pricing bound eliminates arbitrage opportunities which remain under huberman s bound this result also provides for the first time the intuition for the role of residual risk in the approximate pricing relation section v provides an interpretation of the factor premiums and gives a valid asset pricing model interpretation to the apt which is consistent with merton s

treasury yield curves and cointegration previous studies find that there is only one common stochastic trend in a set of interest rate series the result is interpreted as the evidence for supporting the expectations hypothesis cf hall et al 1992 this study finds that there are three common stochastic trends when whole spectrum stucture is analysed the three common stochastic trends can be interpreted as the shift the slope and the curvature of the term structure

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

stable factors in security returns identification using cross validation recent papers in financial research focus on identifying a stable factor structure for security returns the likelihood ratio test typically is used to determine the number of factors from exploratory factor analysis models in this article we consider the use of cross validation to identify a stable factor structure in security returns when applied to actual stock return data cross validation identifies a smaller number of stable factors than the likelihood ratio test in groups of 30 60 randomly selected securities cross validation suggests one dominant factor whereas the likelihood ratio test identifies from four to six factors furthermore when groups are designed to highlight industry or size effects the discovery of more than one dominant factor is problematic even if there are multiple economic factors generating stock returns they may be difficult to disentangle if the underlying factors tend to be correlated

environmental relevance and use of energy indicators in environmental management and research this thesis aim is to develop an approach for scoping of environmental aspects regarding the material use in a large organisation in order to contribute to a strategic environmental management the study object is the swedish national rail authority the transport sector is closely linked to the environmental pressures caused by our society consequently a lot of studies have been made regarding the contribution from different transport sectors however the bulk of these studies concerns only the transports and thus omits the environmental pressures from the material use needed to support these sectors i e building and maintaining the infrastructure the rail transport sector is generally conceived to be the most environmentally adapted land transport mode however this notion commonly only includes environmental pressures from the traffic phase the method uses material related energy use and co2 emissions as a proxy to environmental pressures from material use furthermore the robustness of the method is tested by the use of scenarios and sensitivity analysis in particular the environmental relevance of the energy indicator is studied the approach developed in this thesis can be used to introduce new perspectives such as upstream environmental pressures to an organisation s environmental management it can be employed to identify hot spots in an organisation s material use consequently this new knowledge can be used to influence the design of new products to set environmental demands for purchasing and to focus further environmental analyses of the hot spots the approach can also be used to broaden the perspectives in for instance environmental impact assessments strategic environmental assessment and environmental reviews in the studied rail building project 3 products constituted 99 5 weight of the total material use these products were steel rails concrete ties and ballast materials they share the common characteristics of being noncomplex non toxic and made out of very few materials

communicating the eco efficiency of products and services by means of the eco costs value model abstract at the delft university of technology a new model has been developed to describe the sustainability of products the evr model this model comprises two concepts the virtual eco costs as a lca based single indicator for environmental impact the evr eco costs value ratio as an indicator for eco efficiency in this publication an experiment is described to test whether the evr model leads to a good understanding of the eco efficiency of a product service combination in this experiment three separate groups of 8 11 people were asked to rank four alternative solutions of a product service system the after sales service and the maintenance service of an induction plate cooker both in terms of sustainability and of general preference the three respective groups were customers among whom representatives of consumer organizations business representatives from the manufacturing company of the induction plate cookers governmental representatives employees of the dutch ministries of environmental affairs and economic affairs and of the dutch provinces as well as consultants involved in governmental policies all experts in the field of sustainability the basic idea was to ask each group to rank the four alternatives after three levels of information input level 1 basic explanation of the four alternatives some major features and characteristics such as price were given but no environmental data level 2 on explanation of an lca of the four alternatives given in nine impact classes and the eco indicator 95 level 3 an explanation of the evr model and the evr data of the four alternatives each time the group was asked to rank the proposed alternatives in terms of expected environmental performance and of best choice in general which system would you have bought in a real life situation from the experiments it can be concluded that the concept of eco costs was accepted by the majority of the non experts they based their ranking on it and they preferred it rather than direct lca output or the damage based eco indicator 95 data the environmental experts in the governmental group did not directly accept the concept of eco costs model they wanted in depth information first they tended to stick to their existing knowledge of lca data and the eco indicator 95 overall preferences of the customers and business representatives were primarily ranked on the perceived value costs ratio of the product service combination the sustainability of the product service combination played a secondary role

industrial eco efficiency regional disparity and spatial convergence of china s regions abstract in this study the industrial eco efficiency measures of 30 chinese provinces municipalities and autonomous regions from 2001 to 2015 were estimated based on a proposed data envelopment analysis dea model and the non convex metafrontier undesirable outputs super efficiency slacks based measure ncmeta us sbm which simultaneously incorporates non convex metafrontier technology undesirable outputs and super efficiency into slacks based measure subsequently dynamic spatial econometric models were employed to test the spatial convergence of industrial eco efficiency the empirical results show that 1 the average value of industrial eco efficiency was the highest in the eastern region 0 67 followed by the western region 0 30 and central region 0 27 indicating the existence of a significant regional disparity 2 strong evidence for global and club spatial convergence of industrial eco efficiency was found with regard to regional heterogeneity provinces in the eastern region converged faster than those in the central and western regions while the convergence speed of industrial eco efficiency increased after 2008 with respect to temporal heterogeneity 3 the ownership structure appeared to have a higher impact on industrial eco efficiency than other controls in the presence of spatial conditional convergence these findings are robust with regard to both spatial econometric model and spatial weighting matrix specifications based on the empirical analysis the following policies promote industrial eco efficiency in china have been recommended first relevant authorities must take effective measures to encourage the central western regions to adopt clean energy technologies the energy subsidy policies should strive to break through the technological lock in and turn to regional green development second full advantage of the spatial effects must be taken and technological exchanges and cooperation among neighboring areas must be strengthened to ensure that the industrial eco efficiency of the central and western regions converge with those of the eastern coastal areas policy implications of multidimensional heterogeneity and adjustment of industrial structure should be highlighted while promoting industrial eco efficiency finally it is crucial to emphasize factors such as foreign direct investment fdi ownership and industrial structures to attract fdi and optimize the current industrial structure

a multivariate linear regression test for the arbitrage pricing theory a test for the arbitrage pricing theory which employs a multivariate linear regression model is developed given a sample of return premiums for a set of n assets which includes a subset of k linearly independent portfolios the k factor apt hypothesis is accepted if the intercept term is zero in the multivariate regression of the n k returns on the k portfolios the test may be carried out simply by using univariate multiple regression software the relation of this test to the concept of performance potential and sharpe s measure of performance is also discussed if the performance potential of the k portfolios is not significantly less than the performance potential of the complete set of n assets then the k factor apt hypothesis is accepted in roll and ross rr 10 an empirical investigation of the ross 11 arbitrage theory of pricing apt was carried out the central core of the apt as outlined in rr is that the return generating process for a population of n assets is a linear function of only a few say k k n systematic factors or components and as a consequence many portfolios are close substitutes the central conclusion of the apt is that the mean premium return vector lies in a k dimensional subspace spanned by the factor loadings the purpose of the empirical investigation as claimed by rr was to investigate the existence of the factors and their association with the risk premia as stressed by rr their methodology does not determine k but is designed to test the hypothesis that there exist several factors whose factor loadings together explain a significant portion of the variation in the mean premium returns the empirical results in rr however indicate the presence of three to four priced factors the first empirical test outlined by rr involves two steps using time series data the mean return premium vector is estimated and a factor analysis procedure is used to estimate the k factors and their loadings a complex weighted least squares procedure is then used to estimate the linear model relating the mean return premium vector to the factor loadings the weighted least squares procedure requires estimation of the matrix of weights and is carried out for t 1 2 t cross sections in this paper the central conclusion of the apt is shown to be equivalent to a statement about the intercept term in the multivariate regression function of a

an empirical investigation of international asset pricing we investigate several asset pricing models in an international setting we use data on a large number of assets traded in the united states japan the united kingdom and france the models together with the hypothesis of capital market integration imply testable restrictions on multivariate regressions relating asset returns to various benchmark portfolios we find that multifactor models tend to outperform single index models in both domestic and international forms especially in their ability to explain seasonality in asset returns we also find that the behavior of the models is affected by changes in the regulatory environment in international markets

a test of the arbitrage pricing theory using accounting information abstract in this note we present a method to test the arbitrage pricing theory apt using aggregated accounting information empirical evidence indicates that this method offers a fruitful way to test the apt

risk and capital asset prices abstract this paper is an empirical examination of the statistical significance of the residual variance of individual assets as compared with the covariance of returns with various market portfolio proxies in predicting expected return the data and analysis we present suggest that measures of covariance are no more significant than residual variance in predicting expected return in this sense our paper is not supportive of the sharpe lintner or black versions of the capital asset pricing model

some empirical tests in the arbitrage pricing theory macro variables vs derived factors abstract this study investigates the ability of two models based on the arbitrage pricing theory apt to predict portfolio returns over the period 1971 1986 the difference between the two models lies in the factors used in the factor loading model flm the factors are produced by factor analysis and are thus unspecified in the macroeconomic variable model mvm the factors are defined as innovations in a set of macrovariables the two approaches are compared in several different ways observed differences in test results between the two models are generally relatively small given some attractive features of the mvm such as economically interpretable factors this finding is encouraging and suggests that factor analysis may be unnecessary in implementing the apt

system identification in noisy data environments an application to six asian stock markets abstract this paper analyzes the systematic relationship between the stock market valuations the nominal gdps and the interest rates of six asian countries using not single equation regression but an alternative methodology based on complete multidirectional least squares projections in the tradition of frisch 1934 we compare the results with the spectral analysis of the information matrices and determine the noise levels the objective is to extract the multidimensional economic system structures from the noisy empirical observations this complete methodology sharply contrasts with the incomplete methodology of fama fama e f 1990 stock returns expected returns and real activity journal of finance 45 1089 1108 and schwert schwert g w 1990 stock returns and real activity a century of evidence journal of finance 45 1237 1257 etc who presume planal relations fit them to the multidimensional data by only one prejudiced unidirectional projection thereby ignoring between 75 and 92 of the available covariance information and not publishing all possible model projections the results in this paper show that the analyzed countries are better analyzed using such complete multidirectional ls projections even though the analysis is combinatorially much more complex all six asian financial economic systems are high data noise environments in which it is very difficult to separate the systematic signals from the noise because of these high noise levels spectral analysis is very unreliable we identify taiwan s stock market economy and financial market to be rationally coherent in contrast malaysia singapore philippines and indonesia show only partially coherent systems while no coherent system can be identified among japan s data

integration or segmentation of the canadian stock market evidence based on the apt the domestic and international arbitrage pricing theories are modified to encom pass the hypotheses that the canadian and global north american equity markets are com pletely or partly integrated segmented the exchange rate determination literature is used to identify potentially priced binational factors and the sensitivities and factor prices are es timated using non linear sur the two equity markets are only partly integrated segmented canadian stock returns are influenced by the pure domestic components of the term structure and lagged industrial production and by the pure international components of the differential

price regulation in property liability insurance a contingent claims approach a discrete time option pricing model is used to derive the fair rate of return for the property liability insurance firm the rationale for the use of this model is that the financial claims of shareholders policyholders and tax authorities can be modeled as european options written on the income generated by the insurer s asset portfolio this portfolio consists mostly of traded financial assets and is therefore relatively easy to value by setting the value of the shareholders option equal to the initial surplus an implicit solution for the fair insurance price may be derived unlike previous insurance regulatory models this approach addresses the ruin probability of the insurer as well as nonlinear tax effects

a new approach to testing asset pricing models the bilinear paradigm we propose a new approach to estimating and testing asset pricing models in the context of a bilinear paradigm introduced by kruskal 18 this approach is both simple and at the same time quite general as an illustration we apply it to the special case of the arbitrage pricing model where the number of factors is pre specified the data appear to be generally in conflict with a five or seven factor representation of the model used by roll and ross 30 when we consider the number of replications of our test and the large number of observations on which it is performed the frequency with which we reject the three factor apm does not lead us to conclude that this model is unrepresentative of security returns further the rejection of the five and seven factor versions is to be expected if the three factor version is correct the paradigm gives insight into the appropriate specification of the model and suggests that there may be a small number of economy wide factors that affect security returns tests of asset pricing models on the basis of observed stock market data have represented a staple of the financial economics literature of the past twenty years the early work is reviewed in the famous paper by jensen 12 and papers by fama and macbeth 6 rosenberg and marathe 31 and roll and ross 30 there has been a great deal of confusion regarding what testable propositions are implied by these models see discussion in roll 29 in this paper we show that at a minimum all asset pricing models yet proposed imply a simple easily testable hypothesis which we refer to as the bilinear hypothesis while specific models may imply further testable propositions if the bilinear hypothesis is rejected the model is inconsistent with the data and should be rejected our test exploits the fact that the economic content of any equilibrium asset pricing model can be expressed in the form of a potentially refutable constraint on the set of parameters of the process generating security returns this constraint specifies that given a set of security specific characteristics there exists a linear relationship common across securities relating expected returns to these

a critical reexamination of the empirical evidence on the arbitrage pricing theory this paper demonstrates that the roll and ross rr and other previously published tests of the apt are subject to several basic limitations there is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the apt model to hold it is found that as one increases the number of securities the number of factors determined increases this increase in the number of factors with larger groups of securities cannot readily be explained by a distinction between priced and nonpriced risk factors as it is impermissible to carry out tests on whether a given risk factor is priced using factor analytic procedures the apt model as exposited by ross 17 18 and extended by huberman 9 has provided the basis of an extensive literature as for example brown and weinstein 1 chen 3 hughes 10 ingersoll 11 jobson 12 reinganum 15 roll and ross rr 16 and shanken 17 to mention but a few it has also been treated in a more general context by chamberlain and rothschild 2 our purpose here is not to comment on this collection of papers many of which are unpublished but to reexamine the evidence presented by rr and point out major pitfalls involved in the empirical methodology employed by them and others who have followed their lead rr claim that on theoretical and more importantly on empirical grounds arbitrage pricing theory apt is an attractive alternative to the capital asset pricing model capm the apt it is argued requires less stringent and presumably more plausible assumptions is more readily testable since it does not require the measurement of the market portfolio and may be better able to explain the anomalies found in the application of the capm to asset returns the acceptability of the apt like that of the capm or any other theory ultimately depends on its ability to explain the relevant empirical evidence our subsequent discussion will show that many of the prqblems associated with the capm are also present in the apt context and that its ability to explain the relevant empirical evidence is not markedly superior moreover it raises questions not only about the rr and related empirical investigations of the apt but also about the testability of that theory in the present state of the art a major part of the problem results from the necessity to break down the universe being analyzed through the apt model this is forced upon the investigator by the fact

alternative duration specifications and the measurement of basis risk empirical tests dramatic increases in interest rate levels and volatility since the early 1970s have renewed interest in fixed income securities and have motivated much study of the appropriate measure of risk for bonds many authors have expanded on macaulay s 1938 concept of duration as a surrogate for risk measurement and have developed a variety of new measures of duration numerous commercial duration based immunization programs are now available purporting to explain returns to provide good measures of risk and to protect fixed income portfolios from volatile interest rates e g leibowitz 1979 leibowitz and weinberger 1981 this paper tests the explanatory power of a number of recently proposed duration measures we show that despite the flood of articles and commercial programs claiming superiority for particular measures of duration the measures studied were virtually indistinguishable empirically in fact none of them did much better than this paper empirically investigates seven duration measures and their role in explaining price volatility caused by interest rate movements that is basis risk the data analysis does not support the important testable implications of the various durations as measures of basis risk all seven durations fail linearity and single risk factor tests from which their advantages are supposed to derive fixed income performance comparisons and immunization strategies based on these durations have not been worthwhile

the empirical foundations of the arbitrage pricing theory abstract this paper uses maximum likelihood factor analysis of large cross sections to examine the validity of the arbitrage pricing theory apt we are unable to explain the expected returns on firm size portfolios although we do explain the expected returns on portfolios formed on the basis of dividend yield and own variance where risk adjustment using the usual capm market proxies fails we also compare alternate versions of the apt and sharply reject the hypothesis that basis portfolios formed to mimic the factors span the mean variance frontier of the individual assets

potential performance and tests of portfolio efficiency abstract the potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the sharpe 1966 performance measure if a portfolio has a sharpe measure equivalent to the potential performance of the underlying set of assets then it is efficient multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios the procedures are also compared to the gibbons 1982 methodology for testing financial models

eco efficiency approach for global warming in the context of kyoto mechanism abstract this study discusses an approach to measuring and improving the economic and ecological efficiency of kyoto mechanism projects the approach consists of global warming eco efficiency gwee clean development mechanism cdm joint implementation ji environmental efficiency ee and cdm ji economic productivity ep the gwee indicator is based on the ratio of the value added of a system to its global warming influence in order to measure the eco efficiency of a product in terms of the global warming issue in addition cdm ji ee and cdm ji ep are proposed to measure the environmental and economic performances of cdm and ji projects respectively while ee is defined as the ratio of the certified emission reductions cer obtained from a cdm project or emission reduction unit eru from a ji project to total global warming influence relevant to the cdm or ji implemented ep is defined as the ratio of the total of cer profit and eru profit and the sales revenue to the costs of the cdm and ji implemented then the feasibility of these indicators is examined through a case study for the power generations in the field of alternative energy

poverty and economic development evidence for the brazilian states abstract in the present study our primary concern is to examine the effects of poverty on economic development across the brazilian states from 1980 to 2015 many studies assess the effects of economic growth and economic development on poverty incidence but there is almost no one trying to measure the impact of poverty prevalence on economic development the results of this paper indicate that poverty incidence is essential in the economic development of the brazilian states poorer brazilian states have lower income per worker even when controlling for investment in physical capital human capital stock and the effective depreciation of capital the results point to the variables measuring extreme poverty as having more influence on the economic development of the brazilian states in relation to the variables quantifying poverty

multivariate proxies and asset pricing relations abstract a framework is developed in which inferences can be made about the validity of an equilibrium asset pricing relation even though the central aggregate in this relation is unobservable a multivariate proxy for the true market portfolio consisting of an equal weighted stock index and a long term government bond index is employed in an investigation of the sharpe lintner capm the empirical evidence suggests that we can reject the joint hypothesis that a capm is valid and b multiple correlation between the true market portfolio and proxy assets exceeds 0 7 connections to the equilibrium factor pricing literature are also explored

some pervasive challenges to sustainability by design of electronic products a conceptual discussion sustainability should encompass responsibility for unintended environmental consequences of modern developments this study examined some pervasive challenges to sustainability by design of electronic products namely i product and consumption redundancies i embodied environmental and social impacts occurring distant in time and space from the point of consumption and iii production and consumption dynamics this analysis identified essential developments in certain areas that can assist design practice in preventing unintended environmental consequences these were 1 complementing life cycle assessment studies with analyses of unintended environmental consequences and 2 exploiting the vital role of product design in fostering a circular economy indicators that provide information about a the increasing spatial and decreasing temporal separation of production consumption and waste management b constraints in raw materials supply and c marginal changes in money and time spent should be available to product designers and consumers furthermore information technology namely computer aided design cad tools should be refined to assist product designers in designing for effective circularity and end of waste and limiting hibernation of resources in the use phase

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

consumption volatility production volatility spot rate volatility and the returns on treasury bills and bonds abstract the study documents a relation between the expected holding period premiums on treasury bills and the ex ante conditional volatilities of consumption spot one month interest rate and industrial production a model portraying the relation as a risk and return phenomenon is presented and tested consistent with the model the coefficients of the relation appear to depend on the sensitivity of the realized premium to the ex post shocks in consumption industrial production and the spot rate the model fits the data better than the traditional term premium models

some empirical tests of the theory of arbitrage pricing we estimate the parameters of ross s arbitrage pricing theory apt using daily return data during the 1963 78 period we compare the evidence on the apt and the capital asset pricing model capm as implemented by market indices and find that the apt performs well the theory is further supported in that estimated expected returns depend on estimated factor loadings and variables such as own variance and firm size do not contribute additional explanatory power to that of the factor loadings

risk and return abstract this paper examines the seasonality in the basic relationship between expected return and risk during 1935 82 the results reveal that the positive relationship between return and risk is unique to january the risk premiums during the remaining eleven months are not significantly different from zero

a game theory framework for cooperative management of refillable and disposable bottle lifecycles abstract firms engaged in industrial ecology hope to reduce environmental impacts and costs improve resource efficiency and create symbiotic relationships that reduce transaction costs and enhance information flow however current lca tools do not explain firms incentives to implement the principles of industrial ecology or how an individual or firm can affect the products and processes at other firms game theory on the other hand allows investigation of the willingness of producers and consumers to seek strategies that promote the common interest of the system while not harming their own interests this paper applies game theory to the lifecycle of bottle packaging and presents a framework for analysis of the choice between refillable and disposable bottles although refillable bottles may be more cost effective in the long run bottlers only have incentive to use refillable bottles when they are sure that consumer return rates will be reasonably high it has been found that consumers who keep or dispose of refillable bottles or respond to deposit refund return incentives by reducing their demand may drive costs up and encourage adoption of disposables a simple model is provided which finds the optimal bottler strategy as a function of the bottler s expectations for consumer cooperation

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

new tests of the apt and their implications this paper provides new tests of the arbitrage pricing theory apt test results appear to be extremely sensitive to the number of securities used in the two stages of the tests of the apt model new tests also indicate that unique risk is fully as important as common risk while these tests have serious limitations they are inconsistent with the apt

stock return anomalies and the tests of the apt this paper shows that the empirical tests of the arbitrage pricing theory apt model are very sensitive to the anomalies observed in january in the stock returns data there is a strong seasonal pattern in the estimates of the risk premia from the apt model the most important implication of the findings in this paper is that the apt model can explain the risk return relation mostly for january once the january returns are excluded from the data there is no significant relation between the expected stock returns and the risk measures predicted by the apt model it is now a very well known phenomenon that stock returns exhibit a peculiar seasonal pattern while such a seasonal pattern in stock returns is an interesting phenomenon in itself and has yet to be fully explained there is a serious implication of the observed seasonality in stock returns on the tests of the assetpricing models 1 tinic and west 17 for example report that the risk return relation described by the capital asset pricing model capm also exhibits a similar seasonality in january a result rozeff and kinney 16 report as well more importantly however they show that only one month january shows a consistently positive and reliable relation between expected return and risk once the data for january are excluded from the analysis of the risk return tradeoff the estimates of risk premia are no longer reliably different from zero although tinic and west do not offer an explanation for their findings their results raise serious questions about the empirical tests of the capm and ultimately its validity as a viable model to explain the pricing of risky assets the purpose of this paper is to investigate the impact of stock return seasonality on the empirical tests of the arbitrage pricing theory apt a number of researchers argue on both theoretical and empirical grounds that the apt is a good alternative to the capm although there is a growing body of empirical literature on the apt the empirical tests of the apt thus far have produced inconclusive results and a good deal of controversy it now seems appropriate to

hot hands in bond funds we investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003 we show that bond funds that display strong weak performance over a past period continue to do so in future periods the out of sample difference in risk adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3 5 percent per year we demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return suggesting that bond fund investors can exploit the observed persistence our results are robust to a wide range of model specifications and bootstrapped test statistics

on the determinants of the value of call options on default free bonds the fundamental determinants of the value of an option on a bond are the level and slope of the term structure and the level of interest rate uncertainty competing models that have been developed to price bond options produce similar estimates as long as those models are conditioned on similar values for the fundamental determinants this result is established for simple options with known closed form solutions and for more complex options that require numerical methods for evaluation the finding is confirmed for a wide range of economic conditions and it is shown to be robust with respect to the number and nature of factors that generate interest rate movements copyright 1990 by the university of chicago

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

data frequency and the number of factors in stock returns abstract determining the number of factors that explain stock returns plays an important role in empirical tests of the arbitrage pricing theory this paper examines the sensitivity of the number of factors to different data frequencies using daily weekly and monthly returns the empirical results are consistent with the null hypothesis that the number of factors is the same for different data frequencies once daily returns are adjusted for nonsynchronous trading the evidence also identifies only one or two factors

the seasonal stability of the factor structure of stock returns this paper investigates the month by month stability of a daily returns and correlation coefficients of stock returns b correlation and covariance matrices c number of return generating factors and d the apt pricing relationship the results show that there is a january effect and a small firm effect in stock returns correlation matrices are more stable than covariance matrices but both types of matrices are not stable across months and across the sample groups the number of return generating factors is rather stable most of the time and for most of the sample groups but there is some significant instability that is related to the average correlation coefficients among stocks the apt pricing relationship does not seem to be supported by the two stage process using the maximum likelihood factor analysis the seasonality of common stock returns has received considerable attention in financial economics research studies by officer 23 rozeff and kinney 29 gultekin and gultekin 11 and others have investigated the stock returns of the u s and other countries on a monthly basis they generally have found that on average january returns are significantly higher than the returns for other months banz 1 and reinganum 25 26 have found abnormally high returns in small market value firms and keim 17 has related this to the first few trading days of january schwert 30 points out the current difficulty of explaining these empirical regularities and the need for further investigations several studies have examined seasonality in risk premiums rozeff and kinney 29 found that seasonality appeared in the risk premiums obtained from a twoparameter capm and that january displayed a relatively large risk premium compared with the other months keim 16 also found seasonality in the risk premiums more recently tinic and west 32 examined the risk premiums of the two parameter capm and observed the previously reported seasonality and high january premium they also found that january is the only month in which there is a consistently positive statistically significant relationship between expected return and risk very recently using the two stage procedure with the

capital controls and international capital market segmentation the evidence from the japanese and american stock markets the paper focuses on two countries japan and the u s to test the integration of capital markets in japan the enactment of the foreign exchange and foreign trade control law in december of 1980 amounted to a true regime switch that virtually eliminated capital controls using multifactor asset pricing models we show that the price of risk in the u s and japanese stock markets was different before but not after the liberalization this evidence supports the view that governments are the source of international capital market segmentation the notion that world capital markets are perfectly integrated is central to most theoretical developments in both international finance and macroeconomics indeed it also lies behind much of the recent international policy discussion capital markets are integrated if assets with perfectly correlated rates of return have the same price regardless of the location in which they are traded 1 segmentation may arise either because of government impediments to capital movements or because of individuals attitudes or irrationality if the hypothesis that the international capital markets are integrated is rejected there is still an important empirical question left unanswered which is related to the source of segmentation while there is a rich body of theoretical research on international market integration only a few studies have tried to investigate this important question empirically a first group of empirical studies on market integration has generally adopted

arbitrage pricing theory and utility stock returns this paper presents some new evidence that arbitrage pricing theory may lead to different and better estimates of expected return than the capital asset pricing model particularly in the case of utility stock returns results for monthly portfolio returns for 1971 1979 lead to the conclusion that regulators should not adopt the single factor risk approach of the capm as the principal measure of risk but give greater weight to apt whose multiple factors provide a better indication of asset risk and a better estimate of expected return notwithstanding initial skepticism and recent challenges the capital asset pricing model capm has been used to develop project screening rates value companies measure the impact of policy change on risk and construct portfolios recently the federal energy regulatory commission ferc proposed it as the principal measure of risk for the electric utilities it regulates it would be ironic for acceptance of capm by policymakers to occur just as arbitrage pricing theory apt threatens to replace it as an explanation of the relationship between return and risk and it would be a pity if ferc were to adopt the single risk factor approach of capm when it could be demonstrated that the multiple factors of apt provide a better indication of asset risk and a better estimate of expected return this paper presents some new evidence that apt may lead to different and better estimates of expected return than capm and that it may be more helpful to policymakers as a result we describe capm and apt note work done by others show how estimates of required returns for utilities developed by applying each model may differ and finally report the evidence that convinces us that if one model is to be relied upon for policy purposes apt would be the better choice

a critical reexamination of the empirical evidence on the arbitrage pricing theory a reply the paper by dhrymes friend and gultekin dfg in this issue criticizes empirical work on the arbitrage pricing theory apt conducted by ourselves rr 3 and by a number of others we are honored that such eminent professors as dfg have taken an interest in our work unfortunately the dfg paper contains analysis which might foster misconceptions in the casual reader our purpose here is to present a brief nontechnical comment we are confident that those who are inclined to study the dfg paper in detail will be able to discern its merit for themselves the introductory section and the concluding section viii of dfg stress three points first that the method of rr has major pitfalls and is seriously flawed second that individual factors should not be tested for their pricing influence and third that more than three to five factors can be found by increasing the size of the group analyzed we will comment on the reasonableness of the second and third point in some detail the first is a value judgment and as such cannot be disputed on logical grounds we would be the last to object to a reasoned opinion judiciously drawn by dispassionate and unbiased scholars but of course we do not agree with the particular opinion expressed by dfg in sections i and ii dfg repeat the standard development of the apt and make much of the argument that the apt as a null hypothesis in a statistical test is independent of any rotation of the factors they stress their view that the only meaningful tests are those of whether any factors are priced rather than those which test whether some of them are priced and others are not rr raise and analyze precisely this same point 1 and in fact our awareness of this issue led us to conduct f tests of the joint significance of all factor prices see our tables iv and vi despite the rotation problem tests of individual factor pricing have meaning since the factors are extracted in the order of their importance in explaining the covariance matrix of returns it is not only perfectly valid it is also interesting to ascertain if they each have an influence upon pricing the number of statistically significant estimated priced factors can be different than the number of true factors because of chance rotation in the

the relative importance of total factor productivity and factors of production in income per worker evidence from the brazilian states income per worker gap in different regions of brazil is stunning to assess the relative importance of factor of production and total factor productivity tfp in those income per worker disparities development accounting exercises were carried out for the 1970 1980 1990 2000 and 2010 years in 1970 both types of capital stocks and tpf gaps were associated with the brazilian states lower relative income in comparison to sao paulo state over the decades up to the year 2000 the brazilian states have experienced a relevant capital deepening process which account for income per work catching up however the tfp gaps in relation to the reference state remain almost stable and their reduction is fundamental to the maintenance of the brazilians states income per worker catching up process the conclusions remain similar when the analysis is conducted by means of distinct proxies of physical capital when considering the human capital qualitative aspect we noticed a greater human capital gap among the brazilian states in relation to sao paulo state and as a consequence a reduction in the tfp relative gap

explorations into factors explaining money market returns in this article we measure and interpret the common factors that describe money market returns results are presented for both three and four factor models we find that the three factor model explains on average 86 percent of the total variation in most money market returns while the four factor model explains on average 90 percent of this variation using mimicking portfolios we provide an interpretation of the systematic risks represented by these factors in this article we attempt to measure and interpret the common factors that describe money market returns the factor approach we employ assumes that the covariance matrix of a set of random variables in this case excess returns can be decomposed into common or systematic components and idiosyncratic or nonsystematic components this decomposition into systematic and nonsystematic components is based on an assumption of a linear relationship between the returns of each security and a set of common factors this is the assumption of linear return generating models which form an integral part of the structure of many asset pricing theories for example arbitrage pricing theory apt as developed by ross 1976 the interpretation is that the common factors represent sources of systematic or nondiversifiable risk and the idiosyncratic component of returns represents diversifiable risks our focus here is not on testing a particular asset pricing model per se but on developing empirical evidence for the existence of stylized facts regarding money market returns the stylized facts take the form of the existence measurement and interpretation of the common factors that are found in money markets our attempt to measure and interpret these sources of systematic risk may eventually lead to the construction of observable eco

why don t we see poverty convergence average living standards are converging among developing countries and faster growing economies see more progress against poverty yet we do not find poverty convergence countries starting with higher poverty rates do not see higher proportionate rates of poverty reduction the paper tries to explain why analysis of a new dataset suggests that at given mean consumption high initial poverty has an adverse effect on consumption growth and also makes growth less poverty reducing thus for many poor countries the growth advantage of starting out with a low mean is lost due to a high incidence of poverty jel d63 i31 i32 o15

calculating the equity cost of capital using the apt the impact of the erm abstract one of the expected benefits of membership of the exchange rate mechanism erm was a reduction in risk which should lead to a lower cost of capital and foster investment and growth using the apt we investigate the behavior of the equity market risk premium for the london stock exchange prior to and during sterling s membership of the erm we find that prior to and during the first year of membership the equity market risk premium fell quite dramatically however when conflict between domestic and erm policy requirements arose at the turn of 1991 the equity risk premium increased and continued to do so until sterling s exit partially wiping out the benefits of membership of the erm

why is poverty so high among afro brazilians a decomposition analysis of the racial poverty gap this study aimed to identify the major factors underlying the large discrepancy in poverty levels between two brazilian racial groups whites and afro brazilians we performed an oaxaca blinder type decomposition for nonlinear regressions in order to quantify the extent to which differences in observed geographic sociodemographic and labor characteristics characteristics effect account for this difference the remaining unexplained part coefficients effect provides evidence on how these characteristics differentially impact on the risk of poverty in each group a detailed decomposition of both effects allows the individual contribution of each characteristic to be determined our results show that the characteristics effect explains a large part of the discrepancy in poverty levels with education and labor variables of household members explaining at least one half of the effect and geographic and demographic variables accounting for the remainder however the unexplained part that remains significant has increased in importance in recent last years and probably results from unequal access to high quality education and the persistence of discrimination against colored workers in the labor market

government bond returns measurement of interest rate risk and the arbitrage pricing theory empirical tests are reported for ross arbitrage pricing theory using monthly data for u s treasury securities during the 1960 1979 period we find that mean returns on bond portfolios are linearly related to at least two factor loadings multivariate test results however are not consistent with the apt our sample data in the u s treasury securities market are also not consistent with either version of the capm one monthahead forecasts of excess returns using factor generating models are compared with corresponding naive predictions or predictions using the market model with various