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Intertemporal Asset Pricing Without Consumption Data

  • John Y. Campbell

This paper proposes a new way to generalize the insights of static asset pricing theory to a multi-period setting. The paper uses a loglinear approximation to the budget constraint to substitute out consumption from a standard intertemporal asset pricing model. In a homoskedastic lognormal selling, the consumption-wealth ratio is shown to depend on the elasticity of intertemporal substitution in consumption, while asset risk premia are determined by the coefficient of relative risk aversion. Risk premia are related to the covariances of asset returns with the market return and with news about the discounted value of all future market returns.

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File URL: http://www.nber.org/papers/w3989.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3989.

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Date of creation: Feb 1992
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Publication status: published as American Economic Review, vol 83, June 1993, p. 487-512
Handle: RePEc:nbr:nberwo:3989
Note: AP EFG
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