Intertemporal Portfolio Theory and Asset Pricing

The intent of this entry is to present intertemporal portfolio theory and asset pricing models, to explain their results and to illustrate the differences between multiperiod and single-period models. To appreciate intertemporal portfolio theory and asset pricing, it is necessary to understand the state of finance theory prior to the seminal intertemporal works of Merton (1969, 1971, 1973), Samuelson (1969), Fama (1970), Hakansson (1970) and Rubinstein (1974). Section I presents single-period theory and some general results on portfolio statistics. Section II presents intertemporal portfolio theory. Section III presents the intertemporal asset pricing model, and Section IV presents the consumption-oriented representation of it. Section V gives important extensions (without proof) and concludes the essay. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.