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Equilibria in the CAPM with non-tradeable endowments

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  • Koch-Medina, Pablo
  • Wenzelburger, Jan

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.

Suggested Citation

  • Koch-Medina, Pablo & Wenzelburger, Jan, 2018. "Equilibria in the CAPM with non-tradeable endowments," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 93-107.
    • Handle: RePEc:eee:mateco:v:75:y:2018:i:c:p:93-107
    DOI: 10.1016/j.jmateco.2017.12.004
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    References listed on IDEAS

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    1. Mayers, David, 1976. "Nonmarketable Assets, Market Segmentation, and the Level of Asset Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(1), pages 1-12, March.
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    12. Jan Wenzelburger, 2010. "The two-fund separation theorem revisited," Annals of Finance, Springer, vol. 6(2), pages 221-239, March.
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    Cited by:

    1. Chiaki Hara, 2018. "Equilibrium Prices of the Market Portfolio in the CAPM with Incomplete Financial Markets," KIER Working Papers 1005, Kyoto University, Institute of Economic Research.

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