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The Capital Asset Pricing Model with Diverse Holding Periods

Author

Listed:
  • Haim Levy

    (Department of Finance, University of Florida, Gainesville, Florida 32611)

  • Paul A. Samuelson

    (Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

Abstract
Assuming that assets are traded in discrete time and that risk averse investors differ in their holding periods, we investigate the conditions under which the CAPM holds. It is shown that when portfolio rebalancing is allowed the CAPM holds in four cases not rigorously analyzed previously. These four cases are: (a) quadratic preferences; (b) one-period normal distributions when utility is defined on the multiperiod terminal wealth which is not normal; (c) the terminal wealth is log-normally distributed; and (d) the terminal wealth W T is normally distributed, but in this case diverse holding periods are not allowed. Case d is similar to the Sharpe-Lintner model with the exception that T - 1 revisions are allowed.

Suggested Citation

  • Haim Levy & Paul A. Samuelson, 1992. "The Capital Asset Pricing Model with Diverse Holding Periods," Management Science, INFORMS, vol. 38(11), pages 1529-1542, November.
    • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:11:p:1529-1542
    DOI: 10.1287/mnsc.38.11.1529
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    Citations

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    Cited by:

    1. Haim Levy & Enrico G. De Giorgi & Thorsten Hens, 2012. "Two Paradigms and Nobel Prizes in Economics: a Contradiction or Coexistence?," European Financial Management, European Financial Management Association, vol. 18(2), pages 163-182, March.
    2. Levy, Moshe, 2022. "An inter-temporal CAPM based on First order Stochastic Dominance," European Journal of Operational Research, Elsevier, vol. 298(2), pages 734-739.
    3. Levy, Haim & Schwarz, Gideon, 1997. "Correlation and the time interval over which the variables are measured," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 341-350.
    4. Haim Levy & Ilan Guttman & Isabel Tkatch, 2001. "Regression, Correlation, and the Time Interval: Additive-Multiplicative Framework," Management Science, INFORMS, vol. 47(8), pages 1150-1159, August.
    5. Moshe Levy & Haim Levy, 2024. "Market Equilibrium and the Cost of Capital with Heterogeneous Investment Horizons," Risks, MDPI, vol. 12(3), pages 1-16, February.
    6. Chaudhury, M. M. & Lee, C. F., 1997. "Functional form of stock return model: Some international evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(1), pages 151-183.
    7. Alina Lucia Trifan, 2009. "Testing Capital Asset Pricing Model For Romanian Capital Market," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 1-43.
    8. Darolles, Serge & Gourieroux, Christian, 2010. "Conditionally fitted Sharpe performance with an application to hedge fund rating," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 578-593, March.
    9. Yin-Ching Jan & Su-Ling Chiu, 2010. "Holding Period And Cross-Sectional Stock Returns: Evidence From Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 79-91.

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