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Equilibria in the CAPM with non-tradeable endowments


Koch-Medina, Pablo; Wenzelburger, Jan (2018). Equilibria in the CAPM with non-tradeable endowments. Journal of Mathematical Economics, 75:93-107.

Abstract

This paper establishes existence and uniqueness of equilibria in the capital asset pricing model (CAPM) in a setting with incomplete markets in which part of the endowments are non-tradeable. It is shown that in equilibrium, agents are willing to assume aggregate hedgeable risk of the market but will no longer hold fractions of the market portfolio. The paper studies the effects of non-traded endowments on equilibrium asset prices and allocations and establishes a linear pricing formula, a security market line, and conditions for the positivity of asset prices.

Abstract

This paper establishes existence and uniqueness of equilibria in the capital asset pricing model (CAPM) in a setting with incomplete markets in which part of the endowments are non-tradeable. It is shown that in equilibrium, agents are willing to assume aggregate hedgeable risk of the market but will no longer hold fractions of the market portfolio. The paper studies the effects of non-traded endowments on equilibrium asset prices and allocations and establishes a linear pricing formula, a security market line, and conditions for the positivity of asset prices.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 March 2018
Deposited On:22 Feb 2019 10:45
Last Modified:22 Feb 2019 10:46
Publisher:Elsevier
ISSN:0304-4068
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jmateco.2017.12.004
Related URLs:https://www.sciencedirect.com/science/article/pii/S0304406817301428 (Publisher)
Other Identification Number:merlin-id:16291

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