Consumption Correlatedness and Risk Measurement in Economies with Non Trade Assets and Heterogeneous Information
18 Pages Posted: 18 Aug 2004 Last revised: 23 May 2012
Date Written: June 1981
The consumption beta theorem of Breeden makes the expected return on any asset a function only of its covariance with changes in aggregate consumption. It is shown that the theorem is more robust than was indicated by Breeden. The theorem obtains even if one deletes Breeden's assumptions that (a) all risky assets are tradable, (b) investors have homogeneous beliefs, (c) other assets can be traded without transactions costs and (d) that all assets have returns which are Ito processes.
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