Price and Payoff Autocorrelations in a Multi-Period Consumption-Based Asset Pricing Model

TL;DR

This paper explores how autocorrelations in prices and payoffs influence multi-period consumption-based asset pricing, providing approximations for key statistical measures and highlighting the model's broader applicability.

Contribution

It introduces approximations of the basic pricing equation that incorporate price and payoff autocorrelations, extending the understanding of multi-period asset pricing models.

Findings

Derived approximations for mean prices and payoffs

Analyzed volatilities and autocorrelations in prices and payoffs

Demonstrated the model's relevance to other asset pricing frameworks

Abstract

This paper highlights the hidden dependence of the basic pricing equation of a multi-period consumption-based asset pricing model on price and payoff autocorrelations. We obtain the approximations of the basic pricing equation that describe the mean price "to-day," mean payoff "next-day," price and payoff volatilities, and price and payoff autocorrelations. The deep conjunction of the consumption-based model with other versions of asset pricing, such as ICAPM, APM, etc. (Cochrane, 2001), emphasizes that our results are valid for other pricing models.