This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The robustness of the capm : a computational approach

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Herings, P.J.J.
Kubler, F. (Tilburg University, Center for Economic Research)

Additional information is available for the following registered author(s):

Abstract

In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically approximate equilibria for a variety of different specications for preferences, endowments and dividends and compare the equilibrium prices and portfolio-holdings to the predictions of the CAPM. While the CAPM does not hold exactly for the chosen specifcation, it turns out that pricing-errors are extremely small. Furthermore, two-fund separation holds approximately.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://arno.uvt.nl/show.cgi?fid=3909
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 54.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 1999
Date of revision:
Handle: RePEc:dgr:kubcen:199954

Contact details of provider:
Web page: http://center.uvt.nl

For technical questions regarding this item, or to correct its listing, contact: (Corry Stuyts).

Related research
Keywords: computational methods

Other versions of this item:

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June. [Downloadable!] (restricted)
  2. Feldstein, Martin S, 1969. "Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection," Review of Economic Studies, Blackwell Publishing, vol. 36(105), pages 5-12, January. [Downloadable!] (restricted)
  3. John Geanakoplos & Martin Shubik, 1989. "The Capital Asset Pricing Model as a General Equilibrium with Incomplete Markets," Cowles Foundation Discussion Papers 913, Cowles Foundation, Yale University. [Downloadable!]
  4. James Tobin, 1956. "Liquidity Preference as Behavior Towards Risk," Cowles Foundation Discussion Papers 14, Cowles Foundation, Yale University. [Downloadable!]
  5. Cass, David & Stiglitz, Joseph E., 1970. "The structure of investor preferences and asset returns, and separability in portfolio allocation: A contribution to the pure theory of mutual funds," Journal of Economic Theory, Elsevier, vol. 2(2), pages 122-160, June. [Downloadable!] (restricted)
  6. Detemple, Jerome B & Selden, Larry, 1991. "A General Equilibrium Analysis of Option and Stock Market Interactions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 279-303, May. [Downloadable!] (restricted)
  7. Connor, Gregory, 1984. "A unified beta pricing theory," Journal of Economic Theory, Elsevier, vol. 34(1), pages 13-31, October. [Downloadable!] (restricted)
  8. Berk, Jonathan B., 1997. "Necessary Conditions for the CAPM," Journal of Economic Theory, Elsevier, vol. 73(1), pages 245-257, March. [Downloadable!] (restricted)
  9. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  10. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February. [Downloadable!] (restricted)
    Other versions:
  11. Schmedders, Karl, 1998. "Computing equilibria in the general equilibrium model with incomplete asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1375-1401, August. [Downloadable!] (restricted)
  12. Kenneth L. Judd, 1997. "Computational Economics and Economic Theory: Substitutes or Complements," NBER Technical Working Papers 0208, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Brown, Donald J & DeMarzo, Peter M & Eaves, B Curtis, 1996. "Computing Equilibria When Asset Markets Are Incomplete," Econometrica, Econometric Society, vol. 64(1), pages 1-27, January. [Downloadable!] (restricted)
  14. Jérôme B. Detemple & Piero Gottardi, 1997. "Aggregation, Efficiency and Mutual Fund Separation in Incomplete Markets," CIRANO Working Papers 97s-11, CIRANO. [Downloadable!]
  15. Gottardi, Piero & Hens, Thorsten, 1996. "The Survival Assumption and Existence of Competitive Equilibria When Asset Markets are Incomplete," Journal of Economic Theory, Elsevier, vol. 71(2), pages 313-323, November. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? Over 77% of the top 1000 economists are registered on RePEc.

This page was last updated on 2008-9-21.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.