publication . Article . Part of book or chapter of book . 2010

An intertemporal asset pricing model with stochastic consumption and investment opportunities

Douglas T. Breeden;
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  • Published: 11 Mar 2010 Journal: Journal of Financial Economics, volume 7, pages 265-296 (issn: 0304-405X, Copyright policy)
  • Publisher: Elsevier BV
Abstract
This paper derives a single-beta asset pricing model in a multi-good, continuous-time model with uncertain consumption-goods prices and uncertain investment opportunities. When no riskless asset exists, a zero-beta pricing model is derived. Asset betas are measured relative to changes in the aggregate real consumption rate, rather than relative to the market. In a single-good model, an individual's asset portfolio results in an optimal consumption rate that has the maximum possible correlation with changes in aggregate consumption. If the capital markets are unconstrained Pareto-optimal, then changes in all individuals' optimal consumption rates are shown to be ...
Subjects
free text keywords: Arbitrage pricing theory, Modern portfolio theory, Economics, Consumption-based capital asset pricing model, Capital asset pricing model, Roll's critique, Investment theory, Portfolio, Microeconomics, Merton's portfolio problem
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