ABSTRACT
The purpose of this chapter is to examine preference-based portfolio behaviour and asset pricing as an application of the characteristics model of demand. There have been a few hints in the literature about the possibility of doing this (e.g. Kane, 1972; Roberts, 1975; Sharpe, 1985), but no formal attempt to do so. This is surprising since the characteristics model encompasses a number of existing and very familiar models of preference-based portfolio behaviour and asset pricing.
