IDEAS home Printed from https://ideas.repec.org/p/cdl/anderf/qt6jz6t031.html
   My bibliography  Save this paper

Dependence of Portfolio Returns Over Time and the CAPM: Diverse Holding Periods

Author

Listed:
  • Levy, Haim
  • Venezia, Itzhak

Abstract

This paper shows that under some plausible assumptions about the distributions of returns and the utility functions of the investors the CAPM holds in every single period even if investors have multiperiod diverse investment horizons. This hold even when portfolio returns are dependent over time. The dependence over time is due to the fact that portfolio decisions of the investors at any given period, depend on the actual returns of previous periods via the wealth effect. Hence, the selected portfolios returns may be dependent over time even if the securities themselves are independent. It is shown that despite the above mentioned dependency the investors must choose, at each period, a portfolio from the mean-variance efficient frontier of that period, hence the CAPM holds in each period. The paper, therefore, extends previous results of Levy and Samuelson [1992], Merton [1973] and Stapleton and Subrahmanyam [1978] that showed the existence of the CAPM in a multiperiod setting. Merton proved his result in a continuous time model, a framework that prohibits transaction costs and hence is quite restrictive. Levy and Samuelson overcame the problem of dependency of portfolios by assuming either a quadratic utility function or implicitly assuming a myopic utility function, whereas Stapleton and Subrahmanyam assumed an exponential utility and a common investment horizon. The above assumptions are quite restrictive, and therefore the model given in this paper provides a much broader scope to the CAPM. It allows discrete revisions, any risk averse preferences, diverse holding periods, dependency over time, and a wide class of distribution functions of returns.

Suggested Citation

  • Levy, Haim & Venezia, Itzhak, 1993. "Dependence of Portfolio Returns Over Time and the CAPM: Diverse Holding Periods," University of California at Los Angeles, Anderson Graduate School of Management qt6jz6t031, Anderson Graduate School of Management, UCLA.
  • Handle: RePEc:cdl:anderf:qt6jz6t031
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/6jz6t031.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:anderf:qt6jz6t031. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/aguclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.