Competitive Stock Markets

Louis Makowski

The Review of Economic Studies, 1983, vol. 50, issue 2, 305-330

Abstract: In a perfectly competitive general equilibrium model with many periods, incomplete markets, and trading through time, we show: current net market value maximization is unanimously favoured by shareholders as the objective of the firm this corresponds to maximizing a relatively simple present discounted value formula the formula is used to derive an Arrow-Lind-type result on the absence of a risk premium in the discount factors for valuing investments whose risk is uncorrelated with social risk competitive stock markets are constrained Pareto optimal in the sense of Diamond.

Date: 1983
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