43:(CAPM). While the CAPM is derived in a static, one-period setting, the CCAPM uses a more realistic, multiple-period setup. The central implication of the CCAPM is that the expected return on an asset is related to "consumption risk", that is, how much uncertainty in consumption would come from holding the asset. Assets that lead to a large amount of uncertainty offer large expected returns, as investors want to be compensated for bearing consumption risk.
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The CAPM can be derived from the following special cases of the CCAPM: (1) a two-period model with quadratic utility, (2) two-periods, exponential utility, and normally-distributed returns, (3) infinite-periods, quadratic utility, and stochastic independence across time, (4) infinite periods and log
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on a risky asset, defined as the expected return on a risky asset less the risk free return, is proportional to the
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utility, and (5) a first-order approximation of a general model with normal distributions.
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240:= consumption beta (of individual company or weighted average of portfolio), and
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on an investment. The foundations of this concept were laid by the research of
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of its return and consumption in the period of the return. The consumption
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Lucas, Robert E. (November 1978). "Asset Prices in an
Exchange Economy".
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is included, and the expected return is calculated as follows:
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Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
