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      Do CAPM results hold in a dynamic economy? a numerical analysis

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      Author(s)
      Akdeniz, L.
      Dechert, W. D.
      Date
      1997
      Source Title
      Journal of Economic Dynamics and Control
      Print ISSN
      0165-1889
      Publisher
      Elsevier
      Volume
      21
      Issue
      6
      Pages
      981 - 1003
      Language
      English
      Type
      Article
      Item Usage Stats
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      Abstract
      In this research we use the projection method (reported by Judd) to find numerical solutions to the Euler equations of a stochastic dynamic growth model. The model that we solve is Brock's asset pricing model for a variety of parameterizations of the production functions. Using simulated data from the model, conjectures (which are not analytically tractable) can be verified. We show that the market portfolio is mean-variance efficient in this dynamic context. We also show a result that is not available from the static CAPM theory: the efficient frontier shifts up and down over the business cycle.
      Keywords
      Asset pricing models
      Computational economics
      Projection methods
      Stochastic growth models
      Permalink
      http://hdl.handle.net/11693/25630
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      • Department of Management 639
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