Hotelling Confronts CAPM: A Test of the Theory of Exhaustible Resources

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Abstract
A model of pricing of natural-resource commodities that integrates financial and product markets is derived and tested. The model unifies two strands of the economic and financial literature: one that builds on the Hotelling model of pricing of exhaustible resources and the other that extends the capital asset pricing model of pricing risky assets. Tests of the predictions make use of a cost function that was estimated from a panel of small Canadian copper mines (Young 1992). The authors' tests fail to reject the theoretical restrictions that are implied by the Hotelling/capital asset pricing model. (This abstract was borrowed from another version of this item.)
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