Abstract
The inter-temporal Capital Asset Pricing Model (CAPM) assumes that investors are risk-averse. However, there is a very large body of empirical and experimental evidence documenting that many investors are not globally risk-averse: Prospect Theory and aspiration-level models are two well-known examples of this literature. This paper employs Stochastic Dominance criteria to generalize the inter-temporal CAPM for all investors with increasing utility functions. Another advantage of the proposed approach is its simplicity: it does not require dynamic programming, and it allows for ambiguous investment horizons.
Original language | English |
---|---|
Pages (from-to) | 734-739 |
Number of pages | 6 |
Journal | European Journal of Operational Research |
Volume | 298 |
Issue number | 2 |
DOIs | |
State | Published - 16 Apr 2022 |
Bibliographical note
Publisher Copyright:© 2021 Elsevier B.V.
Keywords
- CAPM
- Finance
- Investment horizon
- Prospect Theory
- Stochastic Dominance