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A martingale characterization of equilibrium asset price processes

Author

Listed:
  • A. Lazrak

    (UniversitÊ d'Evry, Boulevard des Coquibus, F-91025 Evry Cedex, FRANCE)

  • J.P. DÊcamps

    (GREMAQ, UniversitÊ de Toulouse I, 21 AllÊe de Brienne, F-31000 Toulouse, FRANCE)

Abstract

Bick (1987,1990) and He and Leland (1993) demonstrated that not every arbitrage-free Markovian diffusion price process is consistent with an equilibrium approach. We propose a unified framework for these results and we derive a new martingale characterization of equilibrium.

Suggested Citation

  • A. Lazrak & J.P. DÊcamps, 2000. "A martingale characterization of equilibrium asset price processes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(1), pages 207-213.
    • Handle: RePEc:spr:joecth:v:15:y:2000:i:1:p:207-213
    Note: Received: November 4, 1997; revised version: June 10, 1998
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    Cited by:

    1. Franke, Günter & Lüders, Erik, 2004. "Why Do Asset Prices Not Follow Random Walks?," CoFE Discussion Papers 04/05, University of Konstanz, Center of Finance and Econometrics (CoFE).
    2. Ang, Andrew & Liu, Jun, 2007. "Risk, return, and dividends," Journal of Financial Economics, Elsevier, vol. 85(1), pages 1-38, July.
    3. Lazrak, Ali & Zapatero, Fernando, 2004. "Efficient consumption set under recursive utility and unknown beliefs," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 207-226, February.
    4. Lüders, Erik, 2002. "Asset Prices and Alternative Characterizations of the Pricing Kernel," ZEW Discussion Papers 02-10, ZEW - Leibniz Centre for European Economic Research.
    5. Lüders, Erik & Peisl, Bernhard, 2001. "How do investors' expectations drive asset prices?," ZEW Discussion Papers 01-15, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    Markovian diffusion price process; Equilibrium; Partial differential equation; Martingale.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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