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An inter-temporal CAPM based on First order Stochastic Dominance

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  • Levy, Moshe

Abstract

The inter-temporal Capital Asset Pricing Model (CAPM) assumes that investors are risk-averse. However, there is a very large body of empirical and experimental evidence documenting that many investors are not globally risk-averse: Prospect Theory and aspiration-level models are two well-known examples of this literature. This paper employs Stochastic Dominance criteria to generalize the inter-temporal CAPM for all investors with increasing utility functions. Another advantage of the proposed approach is its simplicity: it does not require dynamic programming, and it allows for ambiguous investment horizons.

Suggested Citation

  • Levy, Moshe, 2022. "An inter-temporal CAPM based on First order Stochastic Dominance," European Journal of Operational Research, Elsevier, vol. 298(2), pages 734-739.
    • Handle: RePEc:eee:ejores:v:298:y:2022:i:2:p:734-739
    DOI: 10.1016/j.ejor.2021.07.012
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