Restoy is from the Bank of Spain. Rockinger is from Groupe HEC. We are grateful to Gary Chamberlain, Greg Mankiw, Philippe Weil, and an anonymous referee for helpful comments. Rockinger wishes to acknowledge financial support from the Fondation Nationale pour l'Enseignement de la Gestion des Entreprises.
On Stock Market Returns and Returns on Investment
Article first published online: 30 APR 2012
1994 The American Finance Association
The Journal of Finance
Volume 49, Issue 2, pages 543–556, June 1994
How to Cite
RESTOY, F. and ROCKINGER, G. M. (1994), On Stock Market Returns and Returns on Investment. The Journal of Finance, 49: 543–556. doi: 10.1111/j.1540-6261.1994.tb05151.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This article presents general conditions under which it is possible to obtain asset pricing relations from the intertemporal optimal investment decision of the firm. Under the assumption of linear homogeneous production and adjustment cost functions (the Hayashi (1982) conditions), it is possible to establish, state by state, the equality between the return on investment and the market return of the financial claims issued by the firm. This result proves to be, in essence, robust to the consideration of very general constraints on investment and the inclusion of taxes.