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The Capital Asset Pricing Model with Diverse Holding Periods

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Author Info

  • Haim Levy

    (Department of Finance, University of Florida, Gainesville, Florida 32611)

  • Paul A. Samuelson

    (Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

Abstract

Assuming that assets are traded in discrete time and that risk averse investors differ in their holding periods, we investigate the conditions under which the CAPM holds. It is shown that when portfolio rebalancing is allowed the CAPM holds in four cases not rigorously analyzed previously. These four cases are: (a) quadratic preferences; (b) one-period normal distributions when utility is defined on the multiperiod terminal wealth which is not normal; (c) the terminal wealth is log-normally distributed; and (d) the terminal wealth W T is normally distributed, but in this case diverse holding periods are not allowed. Case d is similar to the Sharpe-Lintner model with the exception that T - 1 revisions are allowed.

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File URL: http://dx.doi.org/10.1287/mnsc.38.11.1529
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 38 (1992)
Issue (Month): 11 (November)
Pages: 1529-1542

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Handle: RePEc:inm:ormnsc:v:38:y:1992:i:11:p:1529-1542

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Related research

Keywords: stochastic dominance; separation theorem; capital asset pricing model;

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Cited by:
  1. Levy, Haim & Schwarz, Gideon, 1997. "Correlation and the time interval over which the variables are measured," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 341-350.
  2. Alina Lucia Trifan, 2009. "Testing Capital Asset Pricing Model For Romanian Capital Market," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 43.
  3. Chaudhury, M. M. & Lee, C. F., 1997. "Functional form of stock return model: Some international evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(1), pages 151-183.

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