The Consumption CAPM

Michael Donadelli, Michele Costola and Ivan Gufler
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Michael Donadelli: University of Brescia
Michele Costola: Ca’ Foscari University of Venice
Ivan Gufler: Luiss Guido Carli

Chapter 5 in Essentials of Financial Economics, 2025, pp 121-157 from Springer

Abstract: Abstract Traditional static asset pricing models, such as the CAPM, often fall short in capturing the dynamic nature of real-world investment decisions. These models typically rely on one-period frameworks, neglecting the iterative process of portfolio adjustment in response to evolving market conditions and new information. To address this limitation, a more dynamic approach is necessary to accurately model investor behavior and portfolio optimization strategies. To address this issue, it is essential to develop a multiperiod model that yields a new asset pricing formula. One such model is the Consumption-based CAPM (CCAPM), an intertemporal general equilibrium asset pricing model where investors make optimal decisions recursively.

Date: 2025
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DOI: 10.1007/978-3-031-86189-5_5

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