Heterogeneous Investment Horizon and Capital Assest Pricing Model: Theory and Implication
The risk-return relationship implied by the traditional capital asset pricing model (CAPM) with finite investment horizons is generalized. The effect of heterogeneous investment horizons on the functional form of capital asset pricing is examined, and a translog model is proposed for estimating the risk-return relationship. In addition, it is contended that some empirical findings that are inconsistent with the traditional CAPM have resulted from misspecification of the CAPM by ignoring the discrepancy between the observed data periods and the true investment horizons. Furthermore, it is shown that, under various conditions, the translog model is a suitable function for estimating the relationship between risk and expected returns.
Journal of Financial and Quantitative Analysis
WU, Chunchi; Lee, C.F.; and Wei, K.C..
Heterogeneous Investment Horizon and Capital Assest Pricing Model: Theory and Implication. (1990). Journal of Financial and Quantitative Analysis. 25, (3), 361-376. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/813