DEFINITION of 'Intertemporal Capital Asset Pricing Model  ICAPM'
A financial model that takes into account major sources of risk when optimizing consumption over a period of time. The intertemporal capital asset pricing model (ICAPM) assumes that security returns are normally distributed over multiple time periods, and that all future consumption will be funded by security returns.
ICAPM was described by Nobel laureate Robert Merton in 1973.
BREAKING DOWN 'Intertemporal Capital Asset Pricing Model  ICAPM'
ICAPM is a consumptionbased assetpricing model, and it goes a step further than CAPM in taking into account how investors participate in the market. Most investors do not participate in financial markets for one year, but instead for multiple years. Over longer time periods, investment opportunities might shift as expectations of risk change, resulting in situations in which investors may wish to hedge. For example, an investment may perform better in bear markets, and an investor may consider holding that asset if a downturn in the business cycle is expected.
ICAPM uses meanvariance analysis to create normal distribution of consumption risk over time. Because ICAPM covers multiple time periods, multiple beta coefficients are used to determine how many security concerns covary with a basket of risky securities.
A criticism of ICAPM is that it assumes that consumer expectations are homogenous, meaning that it cannot take into account individual risk preferences.

Financial Modeling
The process by which a firm constructs a financial representation ... 
International Capital Asset Pricing ...
A financial model that extends the concept of the capital asset ... 
Gordon Growth Model
A model for determining the intrinsic value of a stock, based ... 
Lintner's Model
A model stating that dividend policy has two parameters: (1) ... 
TreynorBlack Model
A type of asset allocation model that was developed by Jack Treynor ... 
Capital Asset Pricing Model  CAPM
A model that describes the relationship between risk and expected ...

Fundamental Analysis
Taking Shots At CAPM
Find out why many investors think the capital asset pricing model is full of holes. 
Economics
The Taylor Rule: An Economic Model For Monetary Policy
This interest rate forecasting model has helped central banks around the world adjust their rates to balance out inflation. 
Mutual Funds & ETFs
What Are Factor Model ETFs?
Given that stock picking is not generally effective, trackers that simply follow an index have become very popular. However, trackers have their disadvantages, too, so hybrid models between the ... 
Investing Basics
Introduction To International CAPM
ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it. 
Entrepreneurship
Getting To Know Business Models
Learning how to assess business models helps investors identify companies that are the best investments. 
Fundamental Analysis
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. 
Fundamental Analysis
Catch On To The CCAPM
The consumption capital asset pricing model smoothes over some of CAPM's weaknesses to make sense of risk aversion. 
Home & Auto
Remodeling The Housing Finance Industry
The meltdown in mortgagebacked securities is bringing about reform in home financing. 
Forex Education
Reduce Your Risk With ICAPM
Avoid unnecesary risks involved in CAPM calculations by also incorporating ICAPM into the mix. 
Active Trading
The Fed Model And Stock Valuation: What It Does And Does Not Tell Us
Learn about this popular stock market valuation model and how accurate it has been over the years.

What is finance?
"Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Answer >> 
What is the difference between positive and normative economics?
Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Answer >> 
What is the utility function and how is it calculated?
Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ... Read Answer >> 
How can I use a regression to see the correlation between prices and interest rates?
Learn how to use linear regression to calculate the correlation between stock prices and interest rates by taking the square ... Read Answer >> 
How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
How do I calculate the rule of 72 using Matlab?
Learn how to calculate years it takes for an investment to double or halve based on the rate of return or inflation using ... Read Answer >>