An inter-temporal CAPM based on First order Stochastic Dominance

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.