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Intertemporal Asset Pricing without Consumption Data

John Y. Campbell
The American Economic Review
Vol. 83, No. 3 (Jun., 1993), pp. 487-512
Stable URL: http://www.jstor.org/stable/2117530
Page Count: 26
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Intertemporal Asset Pricing without Consumption Data
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Abstract

This paper proposes a new way to generalize the insights of static asset pricing theory to a multiperiod setting. The paper uses a loglinear approximation to the budget constraint to substitute out consumption from a standard intertemporal asset pricing model. In a homoscedastic lognormal setting, 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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