Journal of Financial Economics Vol. 8 No. 1 1980
Admissible uncertainty in the intertemporal asset pricing model
Abstract
We embed the Sharpe-Lintner, two-parameter asset pricing theory in an intertemporal general equilibrium model. The investment opportunity set changes stochastically over time; in general the short-term and long-term interest rates and the distribution of the rate of return of the market portfolio are non-stationary. This non-stationarity, which is admissible in the Sharpe-Lintner model, has two implications: First, it may bias econometric methods which fail to explicitly take into account the non-stationarity. Second, the sequential application of the Sharpe-Lintner model in the discounting of stochastic cash flows becomes computationally complex and of little practical use.
- DOI
- 10.1016/0304-405x(80)90022-7
- Volume
- 8
- Issue
- 1
- Pages
- 71-86
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref