Intertemporal arbitrage pricing theory |
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Authors: | Reisman H |
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Affiliation: | Faculty of Industrial Engineering and Management, Technion-Israel Institute of Technology, Haifa 32000, Israel |
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Abstract: | It is shown that the arbitrage pricing theory holds in eachinfinitesimal period of a continuous trading model under theassumption that dividend payoffs are functionals of factor andidiosyncratic uncertainty. This generalizes the one- periodmodel's result that the arbitrage pricing theory holds underthe assumption that price changes in a given period satisfya factor structure. Since instantaneous returns in a multiperiodmodel are endogenously determined, the theory is derived underassumptions that may be viewed as restricting more primitivecharacteristics of the economy than the assumptions made forthe one-period model. |
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