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The Intertemporal Capital Asset Pricing Model

In: Econophysics and Capital Asset Pricing

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  • James Ming Chen

    (Michigan State University)

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.

Suggested Citation

  • James Ming Chen, 2017. "The Intertemporal Capital Asset Pricing Model," Quantitative Perspectives on Behavioral Economics and Finance, in: Econophysics and Capital Asset Pricing, chapter 0, pages 127-138, Palgrave Macmillan.
    • Handle: RePEc:pal:qpochp:978-3-319-63465-4_7
    DOI: 10.1007/978-3-319-63465-4_7
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