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

Akdeniz L., Dechert W. D.

Journal of Economic Dynamics and Control, vol.21, no.6, pp.981-1003, 1997 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 21 Issue: 6
  • Publication Date: 1997
  • Doi Number: 10.1016/s0165-1889(96)00014-0
  • Journal Name: Journal of Economic Dynamics and Control
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.981-1003
  • Keywords: Asset pricing models, Computational economics, Projection methods, Stochastic growth models
  • TED University Affiliated: Yes

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.