Intertemporal Capital Asset Pricing Model (ICAPM)

The Intertemporal Capital Asset Pricing Model (ICAPM) extends the traditional Capital Asset Pricing Model (CAPM) by considering how investors make decisions over multiple time periods. It recognizes that investors care about future risks and returns, not just current ones. In this framework, the pricing of assets reflects not only their expected returns and risk in the present but also how changes in economic conditions or investment opportunities might affect future returns. Essentially, ICAPM helps explain how and why investors require compensation for taking on various types of risks that unfold over time.