A key assumption behind the traditional capital asset pricing model (CAPM) is the joint normality of security returns. Recently, however, this assumption has been relaxed in at least two directions. First, the emergence of continuous-time models has shifted emphasis from discrete-time random variables to continuous-time diffusion processes, with log-normality (as opposed to normality) for security prices in the stationary case. Second, the recognition that the CAPM is difficult to test empirically has led to the development of an asset pricing theory based on an arbitrage argument in large markets and free of any distributional assumption.

David C. Emanuel, James D. MacBeth, Further Results on the Constant Elasticity of Variance Call Option Pricing Model, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 4, Proceedings of the 17th Annual Conference of the Western Finance Association, June 16-19, 1982, Portland, Oregon (Nov., 1982), pp. 533-554

Jonathan S. H. Kornbluth, Joseph D. Vinso, Capital Structure and the Financing of the Multinational Corporation: A Fractional Multiobjective Approach, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 2 (Jun., 1982), pp. 147-178

The purpose of this paper is to determine the correct procedure for discounting cash outflows in a capital market context. Beedles has stated flatly that “the risk adjusted discount (RADR) approach should not be applied to investment projects with negative benefits” ([1], p. 176). Lewellen also has recently examined the problem because he felt that there “is something at least vaguely disturbing about the associated write-down of the present value of cash outflows for risk” ([7], p. 1332). Lewellen, however, concluded that “the standard procedure used for inflows can therefore be transferred intact. The logic is symmetric because the sign of the flows is reversed.” In a comment on Lewellen, Celec and Pettway stated that they are “in substantial disagreement with Lewellen's development as well as with any implied generality of employing the standard RADR procedure in valuing cash outflow streams” ([3], P. 1061). This inappropriateness of the standard RADR approach to valuing cash outflows seems to have been accepted in the 1iterature. Kudla [6] recently claimed that it has been proved by the above authors and others that the normative rules in capital budgeting do not hold in evaluating cash outflows.

Sudhakar D. Deshmukh, Stuart I. Greenbaum, Anjan V. Thakor, Capital Accumulation and Deposit Pricing in Mutual Financial Institutions, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 5 (Dec., 1982), pp. 705-725