n capital budgeting problems future cash flows are discounted using the expected one-period returns of the investment. In this paper we relate this approach to the assumption that markets are free of arbitrage. Our goal is to uncover implicit assumptions on the set of cash flow distributions that are suitable for the capital budgeting method. Our results are twofold. First we obtain that for deterministic cost of capital the set of admissible cash flow distributions is large in the sense that no particular structure of the evolution of the distributions is implied. We give stylized examples that demonstrate that even strong assumptions on the return distributions do not restrain the shape of the cash flow distributions. This shows that Fama's assertion that the distributions of one-period single returns become more and more skewed cannot be generalized to multi-period budgeting problems. Secondly, in a subsequent analysis we characterize the cash flow distributions under the additional assumption of a deterministic dividend yield. In this case a linear relationship between returns and cash flows obtains.
We develop a multimarket spatial competition model in which large banks compete with small banks for transparent and opaque borrowers. Opaque borrower lending is influenced by a spillover from transparent borrower markets that depends on the structure of the banking market and is transmitted by banks’ risk‐bearing capacities. Consistent with diverse empirical findings, the structure of the banking market determines whether competition improves credit access (small bank dominated markets) or reduces bank lending (large bank dominated markets). In sufficiently heterogeneous (homogeneous) banking markets, a U‐shaped (inverse U‐shaped) relationship between credit access and bank competition applies.
In the standard CAPM with a riskless asset we give a sufficient condition for uniqueness.This condition is a joint restriction on the agents' endowments and their preferences which is compatible with non-increasing absolute risk aversion and which is in particular satisfied with constant absolute risk aversion. Moreover in the CAPM without a riskless asset we give an example for multiple equilibria even though all agents have constant absolute risk aversion.
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