Article1990

Risk Aversion and the Intertemporal Behavior of Asset Prices

Richard C. Stapleton · Marti G. Subrahmanyam

34 citations0/0 files storedReview of Financial Studies

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Stochastic processes and financial applications Financial Markets and Investment Strategies Economic theories and models

Abstract

In this article, we characterize economies in which both cash flows and forward prices follow random walks. We show in the case of geometric random walks that the preferences of the representative investor are of the constant proportional risk-aversion type. We also show the conditions under which spot prices follow random walks and under which the equivalent martingale measure is non-state-dependent.

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1973The Pricing of Options and Corporate Liabilities 1985A Theory of the Term Structure of Interest Rates 1973An Intertemporal Capital Asset Pricing Model 1964Risk Aversion in the Small and in the Large 1976Risk Aversion in the Small and in the Large 1980Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?1979Martingales and arbitrage in multiperiod securities markets 1978Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence

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