The impact of multiperiod planning horizons on portfolios and asset prices in a dynamic CAPM [An article from: Journal of Mathematical Economics]

This digital document is a journal article from Journal of Mathematical Economics, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper investigates a financial market in which overlapping cohorts of investors with linear mean-variance preferences and multiperiod planning horizons of arbitrary finite length interact. Given heterogeneous subjective beliefs, the temporary equilibrium map determining market clearing prices is calculated explicitly. We introduce the concept of perfect forecasting rules for first and second moment beliefs which generate rational expectations and provide conditions under which these forecasting rules exist. We establish a (J+1)-fund separation theorem showing that under homogeneous beliefs investors with identical multiperiod planning horizons hold portfolios with equal proportions of risky assets.