@techreport{NBERw5496,
 title = "Rational Capital Budgeting in an Irrational World",
 author = "Jeremy C. Stein",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5496",
 year = "1996",
 month = "March",
 URL = "http://www.nber.org/papers/w5496",
 abstract = {This paper addresses the following basic capital budgeting question: Suppose that cross-sectional differences in stock returns can be predicted based on variables other than beta (e.g., book-to- market), and that this predictability reflects market irrationality rather than compensation for fundamental risk.  In this setting, how should companies determine hurdle rates?  I show how factors such as managerial time horizons and financial constraints affect the optimal hurdle rate.  Under some circumstances, beta can be useful as a capital budgeting tool, even if it is of no use in predicting stock returns.},
}