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  • Sureohp VHW 7 DVVHW Sulflqj

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    keyyongpark
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    The document describes a consumption-based asset pricing model (CAPM) with the following key points: 1) Households allocate wealth across risky assets that pay uncertain returns to maximize expected utility of consumption over time, subject to a budget constraint. 2) The first-order condition for optimal asset holdings is given by the Euler equation, which equates the expected marginal rate of substitution to the asset's expected return. 3) In equilibrium, the covariance between an asset's return and the marginal utility of consumption must be non-negative for risky assets and zero for the riskless asset. This ensures greater holdings of assets with returns positively correlated with marginal utility.

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    The document describes a consumption-based asset pricing model (CAPM) with the following key points: 1) Households allocate wealth across risky assets that pay uncertain returns to maximize expected utility of consumption over time, subject to a budget constraint. 2) The first-order condition for optimal asset holdings is given by the Euler equation, which equates the expected marginal rate of substitution to the asset's expected return. 3) In equilibrium, the covariance between an asset's return and the marginal utility of consumption must be non-negative for risky assets and zero for the riskless asset. This ensures greater holdings of assets with returns positively correlated with marginal utility.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    4 views2 pages

    Sureohp VHW 7 DVVHW Sulflqj

    Uploaded by

    keyyongpark
    The document describes a consumption-based asset pricing model (CAPM) with the following key points: 1) Households allocate wealth across risky assets that pay uncertain returns to maximize expected utility of consumption over time, subject to a budget constraint. 2) The first-order condition for optimal asset holdings is given by the Euler equation, which equates the expected marginal rate of substitution to the asset's expected return. 3) In equilibrium, the covariance between an asset's return and the marginal utility of consumption must be non-negative for risky assets and zero for the riskless asset. This ensures greater holdings of assets with returns positively correlated with marginal utility.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    of 2

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