The Intertemporal Capital Asset Pricing Model

James Ming Chen ()
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James Ming Chen: Michigan State University

Chapter Chapter 7 in Econophysics and Capital Asset Pricing, 2017, pp 127-138 from Palgrave Macmillan

Abstract: Abstract Conventional asset pricing models assume, rather unrealistically, that investors live for exactly a single time span, during which they will confront no potential changes in consumption preferences, liquidity needs, or tolerance for risk. Robert Merton’s intertemporal capital asset pricing model fills this theoretical gap. Among other applications, the intertemporal CAPM accommodates consumption smoothing across different life stages. The desire to preserve future investment or consumption opportunities may justify holding assets that counterbalance potential decline in more rewarding but riskier components of a portfolio.

Date: 2017
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DOI: 10.1007/978-3-319-63465-4_7

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