An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles

29 Pages Posted: 12 Jun 2017 Last revised: 13 Dec 2017

See all articles by Robert A. Jarrow

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: November 30, 2017

Abstract

This paper derives an equilibrium capital asset pricing model (CAPM) in a market where asset prices can exhibit price jumps and price bubbles. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The derived risk return relation differs from the classical results only in the characterization of the state price density, which depends on the existence of price bubbles, and in the number and quantity of systematic risk factors.

Keywords: Intertemporal CAPM, Consumption CAPM, Asset Price Bubbles, Diffusion and Jump Processes

JEL Classification: G12, G11, D53, D52

Suggested Citation

Jarrow, Robert A., An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2983321 or http://dx.doi.org/10.2139/ssrn.2983321

Robert A. Jarrow (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Finance
Ithaca, NY 14853
United States
607-255-4729 (Phone)
607-254-4590 (Fax)

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