Equilibria in the CAPM with non-tradeable endowments

Pablo Koch-Medina and Jan Wenzelburger ()

Journal of Mathematical Economics, 2018, vol. 75, issue C, 93-107

Abstract: This paper establishes existence and uniqueness of equilibria in the capital asset pricing model (CAPM) in a setting with incomplete markets in which part of the endowments are non-tradeable. It is shown that in equilibrium, agents are willing to assume aggregate hedgeable risk of the market but will no longer hold fractions of the market portfolio. The paper studies the effects of non-traded endowments on equilibrium asset prices and allocations and establishes a linear pricing formula, a security market line, and conditions for the positivity of asset prices.

Keywords: Portfolio choice; CAPM; Non-tradeable endowments; Risk aversion; Equilibrium; Incomplete markets (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:75:y:2018:i:c:p:93-107

DOI: 10.1016/j.jmateco.2017.12.004

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