is a risk-return trade-off after all $

ine. Financial support es network funded byan anonymous referee for their valuable comments and suggestions. Any remaining shortcomings are m

In this paper we propose a new approach to estimating systematic risk (the beta of an asset). The proposed method is based on a wavelet multiscaling approach that decomposes a given time series on a scale-by-scale basis. The empirical results from different economies show that the relationship between the return of a portfolio and its beta becomes stronger as the wavelet scale increases. Therefore, the predictions of the CAPM model should be

In this paper, we consider the relationship between supermodularity and risk aversion. We show that supermodularity of the certainty equivalent implies that the certainty equivalent of any random variable is less than its mean. We also derive conditions under which supermodularity of the certainty equivalent is equivalent to aversion to mean-preserving spreads in the sense of Rothschild and Stiglitz. © 2006 Elsevier B.V. All rights reserved.

Building on Vijh (Rev. Financial Stud. 7 (1994)), we use additions to the S&P 500 to distinguish two views of return comovement: the traditional view, which attributes it to comovement in news about fundamental value, and an alternative view, in which frictions or sentiment delink it from fundamentals. After inclusion, a stock’s beta with the S&P goes up. In bivariate regressions which control for the return of non-S&P stocks, the increase in S&P beta is even larger. These results are generally stronger in more recent data. Our findings cannot easily be explained by the fundamentals-based view and provide new evidence in support of the alternative friction- or sentiment-based view. r 2004 Elsevier B.V. All rights reserved.

We present a simple model to analyze law enforcement problems in transition economies. Law enforcement implies coordination problems and multiplicity of equilibria due to a law abidance and a 1scal externality. We analyze two institutional mechanisms for solving the coordination problem. A 1rst mechanism, which we call “dualism”, follows the scenario of Chinese transition where the government keeps direct control over economic resources and where a liberalized non-state sector follows market rules. The second mechanism we put forward is accession to the European Union. We show that accession to the European Union, even without external borrow-ing, provides a mechanism to eliminate the “bad ” equilibrium, provided the “accessing ” country is small enough relative to the European Union. Interestingly, we show that accession with-out conditionality is better than with conditionality because conditionality creates a coordination

The literature on horizontal mergers has grown at a rapid pace over the last 20 years. Much of this work has been inspired by counter-intuitive results that arise in both quantity-setting and price-setting games. For example, in quantity-setting games without cost synergies, mergers thatHorizontal mergers with free entry☆

Do endowments predict the location of production? Evidence from national and international data a b,c,

Okajima is correct in arguing that there exists no separating equilibrium in the case of Bertrand competition considered by Qiu (1994). Although the conclusion stated in Proposition 3 by Qiu (1994) remains unchanged, the structure and analysis of Section 4 in Qiu (1994) should be reorganized as follows. First, consider the necessary and sufficient condition for a separation-inducing menu. Following Okajima’s analysis, we can establish a result similar to Lemma 2 by Qiu (1994): Lemma 3. The necessary and sufficient condition for a menu to induce separation is g (cH2c L) sL2s H

models for stock price dynamics