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A note on an interpretation to consumption-based CAPM

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  • Liu, Liqun
  • Wang, Zijun

Abstract

The consumption-based CAPM pricing rule is sometimes interpreted as implying that the price of an asset with a random payoff falls short of its expected payoff if and only if the random payoff positively correlates with consumption. This note demonstrates that this interpretation to C-CAPM is not generally correct. More importantly, it investigates under what qualifications this intuitive interpretation still holds.

Suggested Citation

  • Liu, Liqun & Wang, Zijun, 2008. "A note on an interpretation to consumption-based CAPM," Economics Letters, Elsevier, vol. 99(3), pages 443-445, June.
    • Handle: RePEc:eee:ecolet:v:99:y:2008:i:3:p:443-445
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    Cited by:

    1. Jingyuan Li & Georges Dionne, 2010. "A Theoretical Extension of the Consumption-based CAPM Model," Cahiers de recherche 1047, CIRPEE.
    2. Georges Dionne & Jingyuan Li & Cedric Okou, 2012. "An Extension of the Consumption-based CAPM Model," Cahiers de recherche 1214, CIRPEE.
    3. Mark Rhodes, 2010. "Information Asymmetry and Socially Responsible Investment," Journal of Business Ethics, Springer, vol. 95(1), pages 145-150, August.

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