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Rev Fin 1990; 3:677-693
© 1990 the Society for Financial Studies

Article

Risk aversion and the intertemporal behavior of asset prices

RC Stapleton1 and MG Subrahmanyam2
1 Department of Finance, Management School, Lancaster University, Lancaster LA1 4YX, UK
2 New York University, New York, USA

Abstract

In this article, we characterize economies in which both cash flows and forward prices follow random walks. We show in the case of geometric random walks that the preferences of the representative investor are of the constant proportional risk-aversion type. We also show the conditions under which spot prices follow random walks and under which the equivalent martingale measure is non-state-dependent.


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