Template-type: ReDif-Paper 1.0
Author-Name: Herings P. Jean-Jacques
Author-Name: Kubler Felix
Author-workplace-name: METEOR
Title: Approximate CAPM When Preferences Are CRRA
Abstract: In general equilibrium models of financial markets, the cpital asset pricing formula does not hold when agents have von Neumann-Morgenstern utility with constant relative risk aversion. In this paper we examine under which conditions on endownments and dividens the pricing formula provides a good benchmark for equilibrium returns. While it is easy to construct examples where equilibrium returns are arbitrarily far from those predicted by CAPM, we show that there is a large class of economies where CAPM provides a very good approximation. Although the pricing formula does not hold exactly for the chosen specification, it turns out that pricing-errors are extremely small.
Keywords: Economics ; 
Series: Research Memoranda
Creation-Date: 2003
Number: 064
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:cf449720-dd08-4e18-b5a1-be42133dbd36/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 315829
Handle: RePEc:unm:umamet:2003064