The Capital Asset Pricing Model with Diverse Holding Periods

Assuming that assets are traded in discrete time and that risk averse investors differ in their holding periods, we investigate the conditions under which the CAPM holds. It is shown that when portfolio rebalancing is allowed the CAPM holds in four cases not rigorously analyzed previously. These four cases are: (a) quadratic preferences; (b) one-period normal distributions when utility is defined on the multiperiod terminal wealth which is not normal; (c) the terminal wealth is log-normally distributed; and (d) the terminal wealth W_T is normally distributed, but in this case diverse holding periods are not allowed. Case d is similar to the Sharpe-Lintner model with the exception that T − 1 revisions are allowed.