The impact of multiperiod planning horizons on portfolios and asset prices in a dynamic CAPM

This paper investigates a financial market in which overlapping cohorts of investors with linear mean-variance preferences and multiperiod planning horizons of arbitrary finite length interact. Given heterogeneous subjective beliefs, the temporary equilibrium map determining market clearing prices is calculated explicitly. We introduce the concept of perfect forecasting rules for first and second moment beliefs which generate rational expectations and provide conditions under which these forecasting rules exist. We establish a (J+1)-fund separation theorem showing that under homogeneous beliefs investors with identical multiperiod planning horizons hold portfolios with equal proportions of risky assets.