Conditions for Myopic Valuation and Serial Independence of the Market Excess Return in Discrete Time Models

  • Author(s): GUNTER FRANKE
  • Published: Apr 30, 2012
  • Pages: 425-442
  • DOI: 10.1111/j.1540-6261.1984.tb02318.x


In a multiperiod pure exchange world with investors displaying HARA‐preferences, conditions for period‐by‐period application of one‐period asset pricing models are derived first. The future investment opportunity set may be uncertain, provided that in every period a specific market portfolio variable depending on preferences is known as of the preceding date. This variable need not be completely deterministic.

Second, conditions for a serially independent market excess return are derived. These conditions render serial independence very unlikely. Hence estimation methods assuming serial independence are likely to yield biased results.

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