This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time-varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates.

ABSTRACT This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time‐varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates.

Section I: Introductin to Finance and the Mathematics of Continuous-Time Models 1 Modern Finance 2 Introduction to Portfolio Selection and Capital Market Theory: Static Analysis 3 On the Mathematics and Economic Assumptions of Continuous-Time Financial Models Section II: Optimum Consumption and Portfolio Selection in Continuous-Time Models 4. Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case 5. Optimum Consumption and Portfolio Rules in a Continuous-Time Model 6. Further Developments in theory of Optimal Consumption and Portfolio Selection Section III: Warrant and Option Pricing Theory 7. A Complete Model of Warrant Pricing the Maximizes Utility 8. Theory of Rational Option Pricing 9. Option Pricing when Underlying Stock Returns are Discontinuous 10. Further Developments in Option Pricing Theory Section IV: Contingent-Claims Analysis in the Theory of Corporate Finance and Financial Intermediation 11. A Dynamic General Equilibrium Model of the Asset Market and its Application to the Pricing of the Capital Structure of the Firm 12. On the Pricing of Corporate Debt: The Risk Structure of Interest Rates 13. On the Pricing of Contingent Claims and the Modigliani-Miller Theorem 14. Contingent Claims Analysis in the Theory of Corporate Finance and Financial Intermediation Section V: An Intertemporal-Equilibrium Theory of Finance 15. An Intertemporal Capital Asset Pricing Model 16. A General Equilibrium Theory of Finance in Continuous-Time Section VI: Applications of the Continuous-Time Model to Selected Issues in Public Finance 17. An Asymptotic Theory of Growth Under Uncertainty 18. On Consumption-Indexed Public Pension Plans 19. An Analytic Derivation of the Cost of Loan Guarantees and Deposit Insurance 20. On the Cost of Deposit Insurance when there are Surveillance Costs

ABSTRACT This paper evaluates alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data. We document two potential problems with quote-based methods of trade classification: quotes may be recorded ahead of trades that triggered them, and trades inside the spread are not readily classifiable. These problems are analyzed in the context of the interaction between exchange floor agents. We then propose and test relatively simple procedures for improving trade classifications.

ABSTRACT This paper evaluates alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data. We document two potential problems with quote‐based methods of trade classification: quotes may be recorded ahead of trades that triggered them, and trades inside the spread are not readily classifiable. These problems are analyzed in the context of the interaction between exchange floor agents. We then propose and test relatively simple procedures for improving trade classifications.

ABSTRACT We investigate the importance of bid‐ask spread‐induced biases on event date returns as exemplified by seasoned equity offerings by NYSE listed firms. We document significant negative return biases on the offering day which explain a large portion of the negative event date return documented in the literature. Buy‐sell order flow imbalance is prominent around the offering and induces a relatively large spread bias. If order imbalances are suspected, the researcher can use returns calculated from the midpoint of the closing bid and ask quotes instead of returns calculated from closing transaction prices to avoid this return bias.

We investigate the importance of bid-ask spread-induced biases on event date returns as exemplified by seasoned equity offerings by NYSE listed firms. We document significant negative return biases on the offering day which explain a large portion of the negative event date return documented in the literature. Buy-sell order flow imbalance is prominent around the offering and induces a relatively large spread bias. If order imbalances are suspected, the researcher can use returns calculated from the midpoint of the closing bid and ask quotes instead of returns calculated from closing transaction prices to avoid this return bias.

ABSTRACT We examine differences in structural characteristics that lead firms of different sizes to react differently to the same economic news. We find that a small firm portfolio contains a large proportion of marginal firms‐firms with low production efficiency and high financial leverage. We construct two size‐matched return indices designed to mimic the return behavior of marginal firms and find that these return indices are important in explaining the time‐series return difference between small and large firms. Furthermore, risk exposures to these indices are as powerful as log(size) in explaining average returns of size‐ranked portfolios.

This paper proposes an empirical framework for measuring the effects of entry in concentrated markets. Building on models of entry in atomistically competitive markets, the authors show how the number of producers in an oligopolistic market varies with changes in demand and market competition. These analytical results structure the authors' empirical analysis of competition in five retail and professional industries. Using data on geographically isolated monopolies, duopolies, and oligopolies, they study the relationship between the number of firms in a market, market size, and competition. The authors' empirical results suggest that competitive conduct changes quickly as the number of incumbents increases. Copyright 1991 by University of Chicago Press.