The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 6.
Discussion
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00366
Zhenyu Wang
The Conditional CAPM and the Cross‐Section of Expected Returns
Published: 03/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb05201.x
RAVI JAGANNATHAN, ZHENYU WANG
Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value‐weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross‐section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross‐section of average returns.
On the Design of Contingent Capital with a Market Trigger
Published: 03/01/2014 | DOI: 10.1111/jofi.12134
SURESH SUNDARESAN, ZHENYU WANG
Contingent capital (CC), which aims to internalize the costs of too‐big‐to‐fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stakeholders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante. The “no value transfer” restriction precludes penalizing bank managers for taking excessive risk. Multiplicity or absence of equilibrium introduces the potential for price uncertainty, market manipulation, inefficient capital allocation, and frequent conversion errors.
Empirical Evaluation of Asset‐Pricing Models: A Comparison of the SDF and Beta Methods
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00498
Ravi Jagannathan, Zhenyu Wang
The stochastic discount factor (SDF) method provides a unified general framework for econometric analysis of asset‐pricing models. There have been concerns that, compared to the classical beta method, the generality of the SDF method comes at the cost of efficiency in parameter estimation and power in specification tests. We establish the correct framework for comparing the two methods and show that the SDF method is as efficient as the beta method for estimating risk premiums. Also, the specification test based on the SDF method is as powerful as the one based on the beta method.
An Asymptotic Theory for Estimating Beta‐Pricing Models Using Cross‐Sectional Regression
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00053
Ravi Jagannathan, Zhenyu Wang
Without the assumption of conditional homoskedasticity, a general asymptotic distribution theory for the two‐stage cross‐sectional regression method shows that the standard errors produced by the Fama–MacBeth procedure do not necessarily overstate the precision of the risk premium estimates. When factors are misspecified, estimators for risk premiums can be biased, and the t‐value of a premium may converge to infinity in probability even when the true premium is zero. However, when a beta‐pricing model is misspecified, the t‐values for firm characteristics generally converge to infinity in probability, which supports the use of firm characteristics in cross‐sectional regressions for detecting model misspecification.