EXISTENCE OF A NONNEGATIVE EQUILIBRIUM PRICE VECTOR IN THE MEAN‐VARIANCE CAPITAL MARKET

Hiroshi Konno and Hiroshi Shirakawa

Mathematical Finance, 1995, vol. 5, issue 3, 233-246

Abstract: We derive a necessary and sufficient condition for the existence of a nonnegative equilibrium price vector under which the total demand and supply of each asset balances in the standard mean‐variance capital market. Also, we give an explicit formula for such a price vector. This formula shows that the price of assets is an increasing function of p̄, the weighted average of the requested rate of return of individual investors, which tends to infinity as p̄ approaches the expected rate of return on the market portfolio. Further, we construct a macroeconomic index which gives information about the soundness of the capital market.

Date: 1995
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