Prospect Theory (PT) and Constant Relative Risk Aversion (CRRA) have clear-cut implications for the optimal asset … allocation between stocks and the risk-free asset as a function of the investment horizon. While CRRA preferences imply that the …

a fatal conceptual problem for the capital asset pricing model (CAPM), which assumes a unique common horizon for all … investors. We show that under the standard assumptions, the theoretical CAPM equilibrium surprisingly holds with the 1-period … parameters, even when investors have heterogeneous and possibly much longer horizons. This is true not only for risk …