A model of asset prices is developed that is in principle testable even when agg regate consumption of goods and their market prices are only partiall y observable. The author shows that if there are m consumption goods, expected returns on securities can be expressed in terms of covarian ces of...

A testable single-beta model of asset prices is presented. If state variables have a long-run stationary joint density function, then the rate return on a very long-term default-free discount bond will be perfectly correlated with the representative investor's marginal utility of consumption....