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Undiversifiable Returns in a CAPM Economy

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Author Info

  • Peghe Braila

    (Institute of Economics, University of Copenhagen)

  • Claude Wampach

    (Banque Generale du Luxembourg)

Abstract

The effects of endogenous undiversifiable investment and market structure changes on security pricing are analyzed within the GEI-CAPM (General Equilibrium with Incomplete Markets Capital Asset Pricing Model). Both the mutual fund and security market line theorems are extended conditional to a redefinition of the market portfolio. Relative prices of securities are still determined by covariances with the aggregate endowment but they fail to preserve the ``standard'' invariance result of the CAPM with quadratic utilities. Asset prices may change in response to financial innovation.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/2001/0108.pdf/
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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 01-08.

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Length: 20 pages
Date of creation: Jul 2001
Date of revision:
Handle: RePEc:kud:kuiedp:0108

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Keywords: General Equilibrium with Incomplete Markets; Portfolio Choice; Transfer Technology; Capital Asset Pricing Model;

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