Intertemporal Asset Pricing Without Consumption Data

Download or read book Intertemporal Asset Pricing Without Consumption Data written by John Y. Campbell and published by . This book was released on 1992 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.