A three-period extension of the CAPM

Abstract

Purpose Our result of this paper aims to indicate that the beta pricing formula could be applied in a longterm model setting as well. Design/methodology/approach In this paper, we show that the capital asset pricing model can be derived from a three-period general equilibrium model. Findings – We show that our extended model yields a Pareto efficient outcome. Practical implications The capital asset pricing model (CAPM) model can be used for pricing long-lived assets. Social implications Long-term modelling and sustainability can be modelled in our setting. Originality/value Our results were only known for two periods. The extension to 3 periods opens up a large scope of applicational possibilities in asset pricing, behavioural analysis and long-term efficiency.