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Market Demand Functions in the CAPM

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  • Thorsten Hens
  • Andres L=EEffler
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    Abstract

    We demonstrate that in a CAPM economy Walras Law and the Tobin Separation Property characterize market demand in finite sets of prices. Consequently, for any number n there exist CAPM economies which have at least n equilibria and hence have n different beta pricing fomulas. It is shown that the lower bound on the number of equilibria, n, is robust to pertubations of endowments.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa468.ps
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 468.

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    Length: 15
    Date of creation: Mar 1995
    Date of revision:
    Handle: RePEc:bon:bonsfa:468

    Contact details of provider:
    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: CAPM; Market Demand; multiplicity of equilibria.;

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    References

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    1. Chiappori, Pierre-Andre & Rochet, Jean-Charles, 1987. "Revealed Preferences and Differentiable Demand: Notes and Comments," Econometrica, Econometric Society, vol. 55(3), pages 687-91, May.
    2. Nielsen, Lars Tyge, 1990. "Existence of equilibrium in CAPM," Journal of Economic Theory, Elsevier, vol. 52(1), pages 223-231, October.
    3. Andreu, Jordi, 1982. "Rationalization of market demand on finite domains," Journal of Economic Theory, Elsevier, vol. 28(1), pages 201-204, October.
    4. James Tobin, 1956. "Liquidity Preference as Behavior Towards Risk," Cowles Foundation Discussion Papers 14, Cowles Foundation for Research in Economics, Yale University.
    5. Nielsen, Lars Tyge, 1988. "Uniqueness of Equilibrium in the Classical Capital Asset Pricing Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(03), pages 329-336, September.
    6. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    7. Koch,Karl-Josef, 1987. "Mean demand when consumers satisfy the weak axiom of revealed preferences," Discussion Paper Serie A 102, University of Bonn, Germany.
    8. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-55, July.
    9. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
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