Capital Market Equilibrium with Divergent Borrowing and Lending Rates

Michael Brennan

Journal of Financial and Quantitative Analysis, 1971, vol. 6, issue 5, 1197-1205

Abstract: The Capital Asset Pricing Model of Sharpe [10, 1964], Lintner [8, 1965], and Mossin [9, 1966] showed how it was possible to derive under fairly stringent assumptions the conditions for equilibrium in a market for risky assets. Recent work has been directed at relaxing these assumptions, and this paper extends the progress made thus far by deriving some properties of capital market equilibrium when investors are faced with divergent borrowing and lending rates and when these rates may vary among investors.

Date: 1971
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