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A Capm With Trading Constraints And Price Bubbles

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  • ROBERT JARROW

    (Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, 14853 NY, USA2Kamakura Corporation, Honolulu, 96815 Hawaii, USA)

Abstract

This paper derives an equilibrium capital asset pricing model (CAPM) in a market with trading constraints and asset price bubbles. The asset price processes are general semimartingales including Markov jump-diffusion processes as special cases, and the trading constraints considered include short sale restrictions, borrowing constraints, and margin requirements, among others. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The implications for empirical testing are that additional systematic risk factors will exist in a market with trading constraints and price bubbles as contrasted with an otherwise equivalent unconstrained market with no price bubbles.

Suggested Citation

  • Robert Jarrow, 2017. "A Capm With Trading Constraints And Price Bubbles," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-39, December.
    • Handle: RePEc:wsi:ijtafx:v:20:y:2017:i:08:n:s0219024917500534
    DOI: 10.1142/S0219024917500534
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    References listed on IDEAS

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