Ambiguity in Fama's market equilibrium?
This report shows how to determine in analytic form the security prices implied by the market equilibrium model described by Fama in his book "Foundations of Finance", Chapter 8, Section III. The model assumes that all investors agree on the expected values and covariances of the random final prices at the end of an investment period. The investors interact so that the initial prices lead to an efficient portfolio with security weights proportional to the total initial value of the corresponding firm. If we assume that the expected portfolio return or the risk-free rate is specified, we find that there is a one-dimensional continuum of sets of initial prices satisfying the conditions of the model. It is unclear how to resolve this ambiguity about which model is correct.
|Date of creation:||10 Aug 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Eugene F. Fama, .
"Market Efficiency, Long-term Returns, and Behavioral Finance,"
CRSP working papers
340, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
- Eugene F Fama, . "Market Efficiency, Long-Term Returns, and Behavioral Finance," CRSP working papers 448, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2699. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.