Consumption correlatedness and risk measurement in economies with non-traded assets and heterogeneous information
The consumption beta theorem of Breeden makes the expected return on any asset a function only of its covariance with changes in aggregate consumption. It is shown that the theorem is more robust than was indicated by Breeden. The theorem obtains even if one deletes Breeden's assumptions that (a) all risky assets are tradable, (b) investors have homogeneous beliefs, (c) other assets can be traded without transactions costs and (d) that all assets have returns which are Ito processes.
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- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
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