F. Black, Capital market equilibrium with restricted borrowing, J. Business 45 (1972) 444--454.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....most skewed returns. Skewness may be important in investment decisions because of induced asymmetries in ex post realized returns. At least two factors may induce asymmetries. First, the presence of limited liability in all equity investments may induce option like asymmetries in returns see Black 1972 , Christie 1982 , Nelson 1991 , and Golec and Tamarkin 1998 . Second, the agency problem may induce asymmetries in portfolio returns see Brennan 1993 . That is, a manager has a call option with respect to the outcome of his investment strategies. Managers may prefer portfolios with high ....

Black, Fischer, 1972, Capital market equilibrium with restricted borrowing, Journal of Business 44, 444--455.

....also benefited from discussions with Dennis Peter William Lang, Marsha Jeff Brown, Philip Bartholomew, participants in a seminar at the Office of the Comptroller of the Currency. l John Leusner unexpectedly died on March 5, 1996. We mourn his tragic death and miss our good friend. 1 , and Black (1972) its various formulations provides predictions for equilibrium expected returns on risky assets. More specifically, one of its formulations states that an individual asset s (or a group of assets) expected excess return over the risk free interest rate equals a coefficient, denoted by times the ....

Black, Fischer, 1972, Capital market equilibrium with restricted borrowing, Journal of Business 45, 444-455.

....namely, the plot of mean returns (now not in excess of the riskfree rate) against market betas. Specifically, the CAPM implies that the SML is (i) one to one, and (ii) linear, with (iii) intercept equal to the riskfree rate, and (iv) a positive slope. Early tests following this route include Black, Jensen and Scholes [1972] and Fama and MacBeth [1973] We will refer to the second test as the SML test. While the CAPM can be obtained as a model of equilibrium in financial markets only under specific assumptions about payo#s and preferences, more general asset pricing models use analogous arguments and generate ....

Black, F. (1972): "Capital Market Equilibrium With Restricted Borrowing," Journal of Business 45, 444-454.

....methodology has very low power in detecting misspecified models. Traditional methodologies typically incorporate a fully specified model for asset returns, and they can perform substantially better than the SDF methodology. Asset pricing theories, such as those of Sharpe (1964) Lintner (1965) Black (1972), Merton (1973) Ross (1976) and Breeden (1979) show that the expected return on a financial asset is a linear function of its covariances (or betas) with some systematic risk factors. This implication has been tested extensively in the finance literature by the socalled traditional ....

Black, Fischer, 1972, Capital market equilibrium with restricted borrowing, Journal of Business 45, 444--454.

....as an alternative equilibrium model, the CAPM remained popular. This may at least partially be due to the fact that early empirical tests (Black Jensen Scholes 1972, Fama MacBeth 1973) found support for the model in its original form or in the zero beta version of the model developed by Black (1972). Later, empirical researchers uncovered empirical regularities, or anomalies, that were clearly at odds with the model s predictions. Most importantly, it was found that firm size appeared to be a significant determinat of stock returns (Banz 1981, more recently Daniel Titman 1997, Oertmann ....

Black, Fischer, 1972. Capital market equilibrium with restricted borrowing, Journal of Business 45, 444-455.

.... that in equilibrium Er i = r f b i (ErM r F ) where Er i is the expected return on asset i, r f is the return on the risk free asset, ErM is the expected return on the market portfolio (i.e. a value weighted portfolio of all the assets in the market) and b i = cov(r i , r M ) var(r M ) Black (1972) demonstrated that the same relationship held even if no risk free asset existed provided r F was replaced by the expected return on a portfolio or asset with b = 0. The model formalizes the risk premium of Keynes and Hicks and shows that it depends on the covariance of returns with other assets. ....

Black, F. (1972), "Capital Market Equilibrium with Restricted Borrowing," Journal of Business 45, 444-455.

....E[ e # t ] # 0. Note that this condition does not imply that the individual # j coe#cients from the scaled multifactor representation in (5) should be nonnegative. In the case of a single factor model such as the CAPM, the average risk price for the market beta will have the opposite sign (see [6]) as the average value 13 For the factors we use in our empirical investigation, a value weighted return, labor income growth, and consumption growth, this is probably not a bad approximation in quarterly data. 10 of b t (the average value of (b 0 b 1 z t ) which will be positive as long as ....

Black, Fisher. 1972. #Capital Market Equilibrium with Restricted Borrowing.# Journal of Business 45(July): 444-454.

....market b is too flat (Black, Jensen, and Scholes (1972) Fama and MacBeth (1973) Fama and French (1992) And the standard explanations can be invoked. i) Perhaps the multifactor version of Merton s (1973) ICAPM that does not include a riskfree security (Fama (1996) and is analogous to the Black (1972) version of the CAPM, is more relevant than the riskfree rate version. ii) The problem may be one of implementation. For example, we use a market portfolio that includes only common stocks. iii) The three factor model is just a model, and this may be one of its shortcomings. Whatever the ....

Black, Fischer, 1972, Capital market equilibrium with restricted borrowing, Journal of Business 45, 444-454.

....Most economic and financial phenomena are modeled using probability distributions with finite variance. In particular, Capital Asset Pricing Model (CAPM) theory has been developed by many authors in a Gaussian framework (see e.g. Sharpe [Sha63, Sha64] Mossin [Mos66] Lintner [Lin65] Black [Bla72], Fama MacBeth [FM73] and Blume Freind [BF73] However, the assumption of Gaussianity is in general not verified empirically. It has been shown in many studies that asset returns exhibit a fat tail in their empirical distributions. Mandelbrot [Man63] and Fama [Fam65] proved that empirical ....

F. Black. Capital Market Equilibrium with Restricted Borrowing. Journal of Business, pages 444--455, July 1972.

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F. Black, Capital market equilibrium with restricted borrowing, J. Business 45 (1972) 444--454.

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Black, F. 1972. "Capital Market Equilibrium with restricted borrowing." Journal of Business 45, pp. 444-455.

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Black, F., "Capital Market Equilibrium With Restricted Borrowing," Journal of Business 45, 1972, pp. 444-454.

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Black, F. (1972) : Capital Markets equilibrium with restricted borrowing; Journal of Business 45(3):444--55.

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Black, F. (1972). Capital market equilibrium with restricted borrowing. Journal of Business, 44, 444--455.

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