Consumption-Based Capital Asset Pricing Model (CCAPM)

The Consumption-Based Capital Asset Pricing Model (CCAPM) is a financial theory that links an asset's risk and expected return to how it affects consumer behavior and consumption over time. Unlike traditional models, which focus solely on market risk, CCAPM considers how changes in wealth and consumption levels influence investors' decisions. In essence, it suggests that an asset's expected returns are driven by how much its performance impacts overall consumption patterns, especially during economic fluctuations. This approach helps explain the relationship between risk, returns, and consumers’ preferences in financial markets.