A note on an interpretation to consumption-based CAPM
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.
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References listed on IDEAS
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- Hui Guo & Zijun Wang & Jian Yang, 2006. "Does aggregate relative risk aversion change countercyclically over time? evidence from the stock market," Working Papers 2006-047, Federal Reserve Bank of St. Louis.
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- Motohiro Yogo, 2006. "A Consumption-Based Explanation of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 61(2), pages 539-580, 04. Full references (including those not matched with items on IDEAS)
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