This article presents general conditions under which it is possible to obtain asset pricing relations from the intertemporal optimal investment decision of the firm. Under the assumption of linear homogeneous production and adjustment cost functions (the Hayashi (1982) conditions), it is possible to establish, state by state, the equality between the return on investment and the market return of the financial claims issued by the firm. This result proves to be, in essence, robust to the consideration of very general constraints on investment and the inclusion of taxes.

Systemic risk may be defined as the propensity of a financial institution to be undercapitalized when the financial system as a whole is undercapitalized. In this article, we investigate the case of non-US institutions, with several factors explaining the dynamics of financial firms returns and with asynchronicity of time zones. We apply this methodology to the 196 largest European financial firms and estimate their systemic risk over the 2000–12 period. We find that, for certain countries, the cost for the taxpayer to rescue the riskiest domestic banks is so high that some banks might be considered too big to be saved.