Intermediate Financial Theory, 3rd Edition

(10.29i)

This is equivalent to

$1=E_t\left[{\tilde{m}}_{t+1}{\tilde{R}}_{t+1}\right]$ (10.29ii)

(10.29ii)

where ${\tilde{R}}_{t+1}$ is the gross rate of return to ownership of the asset. Since Eq. (10.29ii) holds for each state s_t, it also holds unconditionally; we thus can also write

$1=E\left[\tilde{m}\tilde{R}\right]$

where E denotes the unconditional expectation. For any two assets i and j (to be viewed shortly as the ...