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

Robert Jarrow ()

Quarterly Journal of Finance (QJF), 2018, vol. 08, issue 02, 1-33

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.

Keywords: Intertemporal CAPM; consumption CAPM; asset price bubbles; diffusion and jump processes (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2010139218500052

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