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Equilibrium Asset Prices and No-Arbitrage with Portfolio Constraints

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  • Jérôme B. Detemple

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  • Shashidhar Murthy
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    Abstract

    We examine intertemporal asset pricing when short sales are constrained in proportion to the value of an investor's portfolio. All assets' prices exceed every investor's marginal utility of consumption-based valuation of the associated dividends if every investor finds himself constrained in some asset in some state; we exhibit such an equilibrium. An asset's price decomposes into three (investor-specific) components: the consumption-value of its dividends, a speculative-value premium, and a collateral-value premium. The validity of the no-arbitrage pricing approach is shown to depend critically on the difference between real securities and their synthetic counterparts. Cet article examine l'évaluation intertemporelle des titres financiers lorsque les ventes à découvert sont limitées en proportion à la valeur du portefeuille de l'investisseur. Le prix de tout actif dépasse, pour tout investisseur, la valorisation de ses dividendes basée sur l'utilité marginale de consommation individuelle, lorsque chaque investisseur se trouve contraint dasn un actif quelconque dans un état quelconque; nous démontrons l'existence d'un tel équilibre. Le prix d'un actif a trois composantes : la valeur de consommation de ses dividendes, une prime de valeur spéculative, et une prime de valeu de collatéral. La validité de l'approche de validation fondée sur l'absence d'arbitrage dépend de manière critique de la différence entre un actif réel et sa contrepartie synthétique.

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    File URL: http://www.cirano.qc.ca/pdf/publication/97s-12.pdf
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    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 97s-12.

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    Date of creation: 01 Mar 1997
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    Handle: RePEc:cir:cirwor:97s-12

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    Keywords: Equilibrium asset prices; no-arbitrage; frictions; consumptiom-value; speculative-value; collateral-value; derivative markets; Prix d'équilibre des titres; absence d'arbitrage; frictions; valeur de consommation; valeur spéculative; valeur de collatéral; titres dérivés;

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