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Undiversifiable Returns in a CAPM Economy

Author

Listed:
  • 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.

Suggested Citation

  • Peghe Braila & Claude Wampach, 2001. "Undiversifiable Returns in a CAPM Economy," Discussion Papers 01-08, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0108
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2001/0108.pdf/
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    References listed on IDEAS

    as
    1. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
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    More about this item

    Keywords

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

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • 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; Trading Volume; Bond Interest Rates

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