ISSN:
1467-9965
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Mathematics
,
Economics
Notes:
This paper derives the equilibrium excess returns on risky assets in an exchange economy where the underlying exogenous uncertainty is a combination of a pure multidimensional jump process and a diffusion model. We derive closed-form solutions for the interest rate and the risk premiums on risky assets for a traditional class of separable utility indices. Our analysis demonstrates that when the underlying jumps of the aggregate consumption process are not negligible, then the traditional form of the consumption-based capital asset princing model need not hold and the asset risk premiums may be larger than predicted by the traditional CCAPM in continuous time, based on pure Itô diffusion processes. Our analysis suggests an explanation for the large estimates of the risk premiums reported in empirical tests of the single-beta CCAPM.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1467-9965.1993.tb00079.x
