Asset Pricing Models When the Number of Securities Held is Constrained: A Comparison and Reconciliation of the Mao and Levy Models

Lawrence Kryzanowski and To Minh Chau

Journal of Financial and Quantitative Analysis, 1982, vol. 17, issue 1, 63-73

Abstract: In a paper published in 1978, Levy [5] proposed a general capital asset pricing model (GCAPM), which he obtained by maximizing investors' utility when the number of securities held in each investor's portfolio is constrained. Although Levy's resultant asset pricing model is somewhat different in appearance than the asset pricing model proposed by Mao [8] in 1971, it can be shown that both models are not only quite comparable in content but that both result in some very promising theoretical and empirical implications. Thus, the purpose of this paper is twofold. First, these two important contributions to the literature on asset pricing in imperfect markets will be compared and contrasted. Second, it will be shown that both models can yield a “clinical” form of the traditional CAPM, which appears to be more desirable for empirical testing purposes.

Date: 1982
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