An Alternative Testable Form of the Consumption CAPM.

A model of asset prices is developed that is in principle testable even when agg regate consumption of goods and their market prices are only partiall y observable. The author shows that if there are m consumption goods, expected returns on securities can be expressed in terms of covarian ces of their returns with market prices of k consumption goods (k bei ng less than m) and aggregate consumption of the remaining goods. Thi s model provides researchers with some flexibility in choosing the se t of variables that measure riskiness of securities, which should lea d to more powerful tests of consumption CAPM. Copyright 1988 by American Finance Association.