The pricing of interest-rate risk: evidence from the stock market
Article Abstract:
Research into the question of whether corporations should pay ex ante premiums to their stockholders, since these investors bear the risks associated with changes in interest rates, indicates that the majority of interest rate-sensitive securities is issued by public utilities and that the ex ante premium is not necessary, because the interest rate risks are included in the stock prices due to the use of the arbitrage pricing theory when valuing such securities. Causes for utility stocks' interest rate sensitivity are detailed, as are the market model used and the research procedures. According to the research, the interest rate factor for investment in stocks is equivalent to unforeseen changes in the expected rate of inflation and actual changes in real rates of interest.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1986
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On the exclusion of assets from tests of the mean variance efficiency of the market portfolio: an extension
Article Abstract:
Prior analysis of the validity of mean-variance efficiency tests applied to market portfolios for which the return on one asset within the portfolio is not fully observable has indicated that although the unobservable data preclude an accurate assessment of the return for the 'missing' asset within the portfolio, it does not force a rejection of the portfolio's return assessment as a whole. This analysis, originally reported by S. Kandel in the March 1984 Journal of Finance, is extended to apply to data related to the missing asset's beta factor in an economy with a riskless asset. The extension of Kandel's theory supports the concept of mean-variance efficiency testing for subsets of assets within portfolios. Six theorems are analyzed in the extension.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1986
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Asset pricing in a production economy with incomplete information
Article Abstract:
The premiums related to asset investments that appear risky may be predicted according to the premiums of the market as a whole, if the static capital asset pricing model developed by Sharpe, Lintner and Mossin is used. However, by eliminating the assumption inherent in their model, that investors observe the state of the economy, asset pricing in conditions where observation is incomplete can be shown to be roughly equivalent to asset pricing within a completely observable economy, although interpretation of the asset pricing in these two economies differs significantly. The research serves to point up the need for further analysis of alternative market structures and their effects on asset pricing models.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1986
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