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Before I comment in detail on the paper presented by Professors Pettit and Westerfield, I will attempt to place their effort in perspective. Although I will not review the literature comprehensively, I will highlight some recent developments in the capital asset pricing literature.
Many people from various professions have long been interested in determining what factors influence common stock prices and the rate of return (or cost of equity capital) which investors expect to obtain from an investment in common stock. The response to this interest has been numerous articles, both theoretical and empirical. A problem of many recent empirical studies is the attempt to explain a complex situation with an oversimplified model which does not explain well interactions among the factors that affect share prices. The present paper does not claim to resolve all the issues that exist but it does attempt to broaden the perspective by developing a more comprehensive theoretical model.
My purpose in this paper is to outline a new approach to the theory of the balance of payments and of balance-of-payments adjustment (including devaluation and revaluation) that has been emerging in recent years from several sources. Concretely, this new approach is found in the change in policy orientation adopted by the British government under pressure from the International Monetary Fund after the devaluation of 1967 failed to produce the expected improvement in the British balance of payments. The theoretical basis for the new orientation can be traced back to the work of the Dutch economist J. J. Koopmans. The new approach is also evident in the theoretical work of my colleagues at the University of Chicago, and R. A. Mundell and his students, although it is only fair to note that economists elsewhere have been working along similar lines. The essence of this new approach is to put at the forefront of analysis the monetary rather than the relative price aspects of international adjustment.
Professor Engerman constructs estimates of relevant data in order to test the assertion that profits from the slave trade provided the capital which financed the Industrial Revolution in England.
Professor Braeman evaluates historians' current assessment of Franklin D. Roosevelt and the New Deal, finding a new consensus emerging among scholars of that important era in American history.
Using the mean-variance model, Sharpe [5] and Lintner [4] have derived an equilibrium model for price determination under uncertainty. Jean [2] has tried to generalize this model so that other moments of the distribution will be taken into account. The purpose of this note is to show that unlike the Sharpe-Lintner model, Jean's results make no economic sense.