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Risk, Return, and Equilibrium: An Extension

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  • Carroll, Carolyn
  • Wei, K C John

Abstract

This study extends a recent empirical reexamination of the risk-ret urn relationship by examining the possibility that an omitted size re lationship may account for the anomalous results. H. Levy's generaliz ed capital asset pricing model provides the theoretical basis for incorporating the impact of firm size on expected return by examining the relative importance of unsystematic risk in pricing closely-held securities compared to pricing widely-held securities. In so doing, the empirical analysis also provides a test of an implication of the generalized capital asset pricing model. Two methodologies are used t o test the hypotheses empirically. The results indicate that, even thou gh size has a significant impact on the risk-return relationship, it apparently does not account for the anomalous results. This implicati on is consistent under both methodologies. Copyright 1988 by the University of Chicago.

Suggested Citation

  • Carroll, Carolyn & Wei, K C John, 1988. "Risk, Return, and Equilibrium: An Extension," The Journal of Business, University of Chicago Press, vol. 61(4), pages 485-499, October.
    • Handle: RePEc:ucp:jnlbus:v:61:y:1988:i:4:p:485-99
    DOI: 10.1086/296445
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    Citations

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    Cited by:

    1. Lam, F.Y. Eric C. & Wei, K.C. John, 2011. "Limits-to-arbitrage, investment frictions, and the asset growth anomaly," Journal of Financial Economics, Elsevier, vol. 102(1), pages 127-149, October.
    2. Elyasiani, Elyas & Mansur, Iqbal, 1998. "Sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate: A GARCH-M model," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 535-563, May.
    3. Pankaj Agrrawal & Faye W. Gilbert & Jason Harkins, 2022. "Time Dependence of CAPM Betas on the Choice of Interval Frequency and Return Timeframes: Is There an Optimum?," JRFM, MDPI, vol. 15(11), pages 1-18, November.
    4. Hart, Jeffrey R. & Apilado, Vince P., 2002. "Inexperienced banks and interstate mergers," Journal of Economics and Business, Elsevier, vol. 54(3), pages 313-330.
    5. K. C. John Wei & Stanley R. Stansell, 1991. "Benchmark Error And The Small Firm Effect: A Revisit," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(4), pages 359-369, December.
    6. Benoit Carmichael & Gilles Boevi Koumou & Kevin Moran, 2021. "The political reception of innovations," Cahiers de recherche 2107, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    7. Benoît Carmichael & Gilles Boevi Koumou & Kevin Moran, 2021. "The RQE-CAPM : New insights about the pricing of idiosyncratic risk," CIRANO Working Papers 2021s-28, CIRANO.

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