AN ASSESSMENT OF THE RISK AND RETURN OF FRENCH COMMON STOCKS

In this paper the relationship is examined between the average return and the risk of a sample of 144 French common stocks which traded continuously over the decade 1969–1979. Although it was found that a negative relationship existed between average return and systematic risk, sufficient evidence could not be gathered to reject the hypothesis that the pricing of French common stocks conforms to the Capital Asset Pricing Model. The nature and implications of the observed negative risk-return trade-off are discussed.     

ON DERIVING THE INTERNAL RATE OF RETURN FROM THE ACCOUNTANT'S RATE OF RETURN

L.A. Gordon (J.B.F.A. Vol. 1 No, 3) claims to have derived a method for approximating the IRR using the ARR. This paper demonstrates that the key relationship in Gordon's paper is only valid if the IRR is already known and used to calculate economic depreciation. It is suggested that Gordon has merely derived a means for refining ARR, but not for deriving IRR.
Dans son article paru dam Vol. 1 No 3 de ce journal, L.A. Gordon prétend avoir introduit une méthode qui permet d'évaluer "Internal Rate of Return" au moyen de "Accountant's Rate of Return". Ce papier démontre que le rapport-clé dont Gordon nous fait part n'est vérifiable que si "Internal Rate of Return" est préablement connu et sert a calculer l'amortissement économique. On insinue ainsi que Gordon a simplement présenté un moyen de perfectionner "Accountant's Rate of Return" mais n'en a pas démontré pour autant l'évaluation de "Internal Rate of Return".
L.A. Gordon (J.B.F.A. Band 1, Nr. 3) behauptet, er habe eine Annäherungsmethode abgeleitet, womit der interne Zinsfuss von dem RO1 Kriterium berechnet werden kann. Dieser Beitrag zeright, dass das Schlüsselverhältnis in Gordons Abhandlung nur dann gültig ist wenn der interne Zinsfull schon bekannt ist und als kalkulatorischer Zinssatz für ökonomische Abschreibungsbetrage verwendet wird. Es wird behauptet, dass Gordon keine Methode für die Ableitung des internen Zinsfusses entwickelt hat, sondern nur eine für die Verbesserung des R01 Kriteriums.     

ON THE RATIONALITY OF COMMON STOCK RETURN VOLATILITY

This paper derives the relationship between the population unconditional variance of common stock returns and the variance of expected returns conditional on a well-specified information set. As a consequence, a lower bound is obtained for the variance of common stock returns. The sample counterpart of this bound is then empirically tested against the sample variance of returns. The paper's main conclusion can be stated as follows: the observed volatility of real (inflation-adjusted) common stock returns is not “irrationally” large. The paper admits of this conclusion because the point estimate of the lower-bound variance derived in this model is actually larger than the point estimate of common stock return volatility. However, since these point estimates are found to have a statistically insignificant difference, equality of the two variances cannot be ruled out. Hence, “rationality” of common stock returns—as implied by a utility-based valuation conditional on a specified information set—cannot be rejected.