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An Intertemporal Asset Pricing Model With Stochastic Consumption And Investment Opportunities

In: Theory Of Valuation

Author

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  • Douglas T. BREEDEN

    (Stanford University, Stanford, CA 94305, USA)

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 singlegood 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 perfectly correlated.

Suggested Citation

  • Douglas T. BREEDEN, 2005. "An Intertemporal Asset Pricing Model With Stochastic Consumption And Investment Opportunities," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 3, pages 53-96, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812701022_0003
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    Citations

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    Cited by:

    1. Samih Antoine Azar, 2018. "The Nexus Between the Elasticity of Intertemporal Substitution and the Coefficient of Relative Risk Aversion," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(3), pages 98-102, July.
    2. Mohammad Q. M. AL-Momani, 2016. "A Modified Fama and French (1993) Three-factor Asset Pricing Model: Evidence from the UK Equity Market," Applied Economics and Finance, Redfame publishing, vol. 3(3), pages 50-64, August.
    3. Safiullin L. N.* & Kokh I. A. & Bodrov R. G. & Gumerov A. V., 2018. "Possibilities of Application of Analytical Methods on the Present Securities Market," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 4(12), pages 711-717, 12-2018.

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