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Competitive Stock Markets

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  • Louis Makowski

Abstract

In a perfectly competitive general equilibrium model with many periods, incomplete markets, and trading through time, we show: current net market value maximization is unanimously favoured by shareholders as the objective of the firm this corresponds to maximizing a relatively simple present discounted value formula the formula is used to derive an Arrow-Lind-type result on the absence of a risk premium in the discount factors for valuing investments whose risk is uncorrelated with social risk competitive stock markets are constrained Pareto optimal in the sense of Diamond.

Suggested Citation

  • Louis Makowski, 1983. "Competitive Stock Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(2), pages 305-330.
    • Handle: RePEc:oup:restud:v:50:y:1983:i:2:p:305-330.
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    File URL: http://hdl.handle.net/10.2307/2297418
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    Citations

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    Cited by:

    1. Andrea Ajello & Ander Pérez-Orive & Bálint Szőke, 2023. "Sticky Leverage: Comment," Finance and Economics Discussion Series 2023-051, Board of Governors of the Federal Reserve System (U.S.).
    2. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany.
    3. Luis H. B. Braido & V. Filipe Martins†da†Rocha, 2018. "Output Contingent Securities And Efficient Investment By Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(2), pages 989-1012, May.
    4. Jacques Dreze, 2016. "Existence and multiplicity of temporary equilibria under nominal price rigidities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 279-298, June.
    5. Jock R. Anderson, 1983. "On Risk Deductions In Public Project Appraisal," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 27(3), pages 231-239, December.
    6. Piero Gottardi & Douglas Gale, 2017. "Equilibrium Theory of Banks' Capital Structure," 2017 Meeting Papers 380, Society for Economic Dynamics.
    7. Gregory K. Dow & Gilbert L. Skillman, 2007. "Collective Choice and Control Rights in Firms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 107-125, February.
    8. Oren Levintal, 2012. "Equity Capital, Bankruptcy Risk and the Liquidity Trap," Working Papers 2012-07, Bar-Ilan University, Department of Economics.
    9. Camelia Bejan, 2020. "Investment and financing in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 149-182, February.
    10. Douglas Gale & Piero Gottardi, 2018. "A General Equilibrium Theory of Capital Structure," 2018 Meeting Papers 264, Society for Economic Dynamics.
    11. Gale, Douglas & Gottardi, Piero, 2020. "A general equilibrium theory of banks' capital structure," Journal of Economic Theory, Elsevier, vol. 186(C).
    12. Jean-Marc Robin & Stéphane Bonhomme & Koen Jochmans, 2014. "Estimating Multivariate Latent-Structure Models," Sciences Po publications 2014-18, Sciences Po.
    13. Michael Zierhut, 2017. "Constrained efficiency versus unanimity in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 23-45, June.

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