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An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles

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  • Robert Jarrow

    (Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, N.Y. 14853, USA2Kamakura Corporation, Honolulu, Hawaii 96815, USA)

Abstract

This paper derives an equilibrium capital asset pricing model (CAPM) in a market where asset prices can exhibit price jumps and price bubbles. We derive a generalized intertemporal CAPM and consumption CAPM for these markets. The derived risk-return relation differs from the classical results only in the characterization of the state price density, which depends on the existence of price bubbles, and in the number and quantity of systematic risk factors with nonzero risk premia.

Suggested Citation

  • Robert Jarrow, 2018. "An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-33, June.
    • Handle: RePEc:wsi:qjfxxx:v:08:y:2018:i:02:n:s2010139218500052
    DOI: 10.1142/S2010139218500052
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