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Professor of Economics, University of Washington. This research was supported in part by the National Science Foundation under grant GS-34501. Myron Scholes generously provided me with the data for his index of returns on common stocks. I am grateful to Eugene Fama and members of the Finance Workshop at the Wharton School for helpful comments and suggestions, though responsibility for errors in results and interpretation remains mine. Since completing this paper I have become aware of papers by Body  and Jaffe and Mandelker  which are directed toward some of the issues discussed here.