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A note on an interpretation to consumption-based CAPM

Liqun Liu and Zijun Wang

Economics Letters, 2008, vol. 99, issue 3, 443-445

Abstract: The consumption-based CAPM pricing rule is sometimes interpreted as implying that the price of an asset with a random payoff falls short of its expected payoff if and only if the random payoff positively correlates with consumption. This note demonstrates that this interpretation to C-CAPM is not generally correct. More importantly, it investigates under what qualifications this intuitive interpretation still holds.

Date: 2008
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Handle: RePEc:eee:ecolet:v:99:y:2008:i:3:p:443-445