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The Le Chatelier Principle of the Capital Market Equilibrium

In: Encyclopedia of Finance

Author

Listed:
  • Chin W. Yang

    (Clarion University of Pennsylvania
    National Chung Cheng University)

  • Ken Hung

    (Division of International Banking and Finance Studies, Texas A&M International University)

  • Matthew Brigida

    (SUNY Polytechnic Institute)

  • John A. Fox

    (Clarion University of Pennsylvania)

Abstract

This chapter purports to provide a theoretical underpinning for the problem of the Investment Company Act. The theory of the Le Chatelier principle is well known in thermodynamics: The system tends to adjust itself to a new equilibrium as far as possible. In capital market equilibrium, added constraints on portfolio investment in each stock can lead to inefficiency manifested in the right-shifting efficiency frontier. According to the empirical study, the potential loss can amount to millions of dollars coupled with a higher risk-free rate and greater transaction and information costs.

Suggested Citation

  • Chin W. Yang & Ken Hung & Matthew Brigida & John A. Fox, 2022. "The Le Chatelier Principle of the Capital Market Equilibrium," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 49, pages 1149-1155, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_49
    DOI: 10.1007/978-3-030-91231-4_49
    as

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