The Intertemporal Capital Asset Pricing Model: Hedging Investment Risk Across Time

Abstract

The previous \ter traced the nuances of the low-volatility anomaly across behavioral space. Specifically, it explored whether examining beta on either side of mean returns or separately evaluating its relative volatility and correlation components might offer insight into why low-volatility stocks offer higher returns. An even fuller explanation of the mechanics of the low-volatility anomaly lies in the work of John Campbell. That explanation, in turn, traces its origins to Robert Merton’s intertemporal CAPM.¹