Risk aversion and the intertemporal behavior of asset prices |
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| Authors: | Stapleton RC; Subrahmanyam MG |
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| Institution: | 1 Department of Finance, Management School, Lancaster University, Lancaster LA1 4YX, UK
2 New York University, New York, USA |
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| Abstract: | In this article, we characterize economies in which both cashflows and forward prices follow random walks. We show in thecase of geometric random walks that the preferences of the representativeinvestor are of the constant proportional risk-aversion type.We also show the conditions under which spot prices follow randomwalks and under which the equivalent martingale measure is non-state-dependent. |
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