[This article develops an intertemporal, discrete-time, competitive equilibrium version of the arbitrage pricing theory (APT) and explores the econometric implications of this model under various restrictions on investor preferences and on the dynamic behavior of dividends. We describe conditions under which the econometric techniques typically used for estimating and testing the APT can be shown to be consistent with our economic model. We relate our intertemporal version of the APT to the static APT and to Merton's intertemporal capital asset pricing model.]

[We investigate several asset pricing models in an international setting. We use data on a large number of assets traded in the United States, Japan, the United Kingdom, and France. The models together with the hypothesis of capital market integration imply testable restrictions on multivariate regressions relating asset returns to various benchmark portfolios. We find that multifactor models tend to outperform single-index models in both domestic and international forms especially in their ability to explain seasonality in asset returns. We also find that the behavior of the models is affected by changes in the regulatory environment in international markets.]

An important issue in applications of multifactor models of asset returns is the appropriate number of factors. Most extant tests for the number of factors are valid only for strict factor models, in which diversifiable returns are uncorrelated across assets. In this paper, the authors develop a test statistic to determine the number of factors in an approximate factor model of asset returns, which does not require that diversifiable components of returns be uncorrelated across assets. They find evidence for one to six pervasive factors in the cross section of New York Stock Exchange and American Stock Exchange stock returns.

This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies. This condition imposes testable restrictions on the parameters of a mutivariate regression model. The empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations.

This paper provides new evidence of how macroeconomic conditions affect capital structure choice. We model firms’ target capital structures as a function of macroeconomic conditions and firm-specific variables. We split our sample based on a measure of financial constraints. Target leverage is counter-cyclical for the relatively unconstrained sample, but pro-cyclical for the relatively constrained sample. Macroeconomic conditions are significant for issue choice for unconstrained firms but less so for constrained firms. Our results support the hypothesis that unconstrained firms time their issue choice to coincide with periods of favorable macroeconomic conditions, while constrained firms do not.

[With time-varying adverse selection in the market for new equity issues, firms will prefer to issue equity when the market is most informed about the quality of the firm. This implies that equity issues tend to follow credible information releases. In addition, if the asymmetry in information increases over time between information releases, the price drop at the announcement of an equity issue should increase in the time since the last information release. Using earnings releases as a proxy for informative events, we find evidence supporting these propositions.]

We investigate several asset pricing models in an international setting. We use data on a large number of assets traded in the United States, Japan, the United Kingdom, and France. The model together with the hypothesis of capital market integration imply testable restrictions on multivariate regressions relating asset returns to various benchmark portfolios. We find that multifactor models tend to outperform single-index models in both domestic and international forms especially in their ability to explain seasonality in asset returns. We also find that the behavior of the models is affected by change in the regulatory environment in international markets.

We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroscedasticity or when cross-sectional sample sizes, n, have fewer than 4,000 assets. Estimators incorporating either cross-sectional or time-series heteroscedasticity outperform the other estimators when those types of heteroscedasticity are present. The differences are most pronounced when the cross-sectional sample is small. Received December 2, 2015; editorial decision May 16, 2017 by Editor Jeffrey Pontiff.

Robert A. Korajczyk, Deborah J. Lucas, Robert L. McDonald, Equity Issues with Time-Varying Asymmetric Information, The Journal of Financial and Quantitative Analysis, Vol. 27, No. 3 (Sep., 1992), pp. 397-417