Incomplete Diversification and Asset Pricing

Robert Elliott, Dilip Madan and Frank Milne

No 273557, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Investors in equilibrium are modeled as facing investor specific risks across the space of assets. Personalized asset pricing models reflect these risks. Averaging across the pool of investors we obtain a market asset pricing model that re°ects market risk exposures. It is observed on invoking a law of large numbers applied to an infinite population of investors that many personally relevant risk considerations can be eliminated from the market asset pricing model. Examples illustrating the e®ects of undiversi¯ed labor income and taste speci¯c price indices are provided. Suggestions for future work on asset pricing include a need to focus on identifying and explaining investor specific risk exposures.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 22
Date: 2002-02
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Related works:
Working Paper: Incomplete Diversification And Asset Pricing (2002)
Working Paper: Incomplete Diversification and Asset Pricing (1992)
Working Paper: Incomplete Diversification and Asset Pricing (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273557

DOI: 10.22004/ag.econ.273557

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