Incomplete Diversification and Asset Pricing
نویسندگان
چکیده
Investors in equilibrium are modeled as facing investor speci ̄c risks across the space of assets. Personalized asset pricing models re°ect these risks. Averaging across the pool of investors we obtain a market asset pricing model that re°ects market risk exposures. It is observed on invoking a law of large numbers applied to an in ̄nite population of investors that many personally relevant risk considerations can be eliminated from the market asset pricing model. Examples illustrating the e®ects of undiversi ̄ed labor income and taste speci ̄c price indices are provided. Suggestions for future work on asset pricing include a need to focus on identifying and explaining investor speci ̄c risk exposures.
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