IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/2699.html

Ambiguity in Fama's market equilibrium?

Author

Listed:
  • Nuttall, John

Abstract

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.

Suggested Citation

  • Nuttall, John, 2006. "Ambiguity in Fama's market equilibrium?," MPRA Paper 2699, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2699
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/2699/1/MPRA_paper_2699.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    2. 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.
    3. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ariane Szafarz, 2015. "Market Efficiency and Crises:Don’t Throw the Baby out with the Bathwater," Bankers, Markets & Investors, ESKA Publishing, issue 139, pages 20-26, November-.
    2. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    3. Abhinava Tripathi, 2021. "The Arrival of Information and Price Adjustment Across Extreme Quantiles: Global Evidence," IIM Kozhikode Society & Management Review, , vol. 10(1), pages 7-19, January.
    4. Taufiq Choudhry & Ranadeva Jayasekera, 2015. "Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 44(2), pages 213-242, February.
    5. Stephan Schulmeister, 2000. "Technical Analysis and Exchange Rate Dynamics," WIFO Studies, WIFO, number 25857, June.
    6. Nabil Sifouh & Ismail Benslimane & Karim Ameziane, 2024. "A critical look at teaching and doing research in finance," Post-Print hal-04936832, HAL.
    7. Meredith Beechey & David Gruen & James Vickery, 2000. "The Efficient Market Hypothesis: A Survey," RBA Research Discussion Papers rdp2000-01, Reserve Bank of Australia.
    8. Carmen López-Martín & Sonia Benito Muela & Raquel Arguedas, 2021. "Efficiency in cryptocurrency markets: new evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 403-431, September.
    9. AitSahlia, Farid & Yoon, Joon-Hui, 2016. "Information stages in efficient markets," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 84-94.
    10. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
    11. Anna Maria Biscotti & Eugenio D?Amico & Sabato Vinci, 2019. "The effectiveness of intellectual capital disclosure in market assessments of corporate value creation," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2019(1), pages 5-35.
    12. Stefanescu, Razvan & Dumitriu, Ramona, 2015. "Conţinutul analizei seriilor de timp financiare [The Essentials of the Analysis of Financial Time Series]," MPRA Paper 67175, University Library of Munich, Germany.
    13. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    14. Lu Zhang, 2019. "Q-factors and Investment CAPM," NBER Working Papers 26538, National Bureau of Economic Research, Inc.
    15. Giuseppe Garofalo & Paolo Fetoni, 2013. "The Chicago School after the crisis of the new millennium," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(2), pages 677-711, February.
    16. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    17. Godfrey, Keith R.L., 2017. "Toward a model-free measure of market efficiency," Pacific-Basin Finance Journal, Elsevier, vol. 44(C), pages 97-112.
    18. Qianwei Ying & Tahir Yousaf & Qurat ul Ain & Yasmeen Akhtar & Muhammad Shahid Rasheed, 2019. "Stock Investment and Excess Returns: A Critical Review in the Light of the Efficient Market Hypothesis," JRFM, MDPI, vol. 12(2), pages 1-22, June.
    19. Morone, Andrea & Nuzzo, Simone, 2015. "Market Efficiency, Trading Institutions and Information Mirages: evidence from an experimental asset market," MPRA Paper 67448, University Library of Munich, Germany.
    20. Kamal, Mona, 2014. "Studying the Validity of the Efficient Market Hypothesis (EMH) in the Egyptian Exchange (EGX) after the 25th of January Revolution," MPRA Paper 54708, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2699. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.