An intertemporal asset pricing model with stochastic consumption and investment opportunities

Book Section

This paper derives a single-beta asset pricing model in a multi-good, continuous-time model with uncertain consumption-goods prices and uncertain investment opportunities. When no riskless asset exists, a zero-beta pricing model is derived. Asset betas are measured relative to changes in the aggregate real consumption rate, rather than relative to the market. In a singlegood model, an individual’s asset portfolio results in an optimal consumption rate that has the maximum possible correlation with changes in aggregate consumption. If the capital markets are unconstrained Pareto-optimal, then changes in all individuals’ optimal consumption rates are shown to be perfectly correlated.

Full Text

Duke Authors

Cited Authors

  • Breeden, DT

Published Date

  • January 1, 2005

Book Title

  • Theory of Valuation, Second Edition

Start / End Page

  • 53 - 84

International Standard Book Number 10 (ISBN-10)

  • 9812563741

International Standard Book Number 13 (ISBN-13)

  • 9789812563743

Digital Object Identifier (DOI)

  • 10.1142/9789812701022_0003

Citation Source

  • Scopus