Two-Person Dynamic Equilibrium in the Capital Market

Bernard Dumas ()

The Review of Financial Studies, 1989, vol. 2, issue 2, 157-88

Abstract: When several investors with different risk aversions trade competitively in a capital market, the allocation of wealth fluctuates randomly among them and acts as a state variable against which each market participant will want to hedge. This hedging motive complicates the investors' portfolio choice and the equilibrium in the capital market. This article features two investors, with the same degree of impatience, one of them being logarithmic and the other having an isoelastic utility function. They face one risky constant- return-to-scale stationary production opportunity and they can borrow and lend to and from each other. The behaviors of the allocation of wealth and of the aggregate capital stock are characterized, along with the behavior of the rate of interest, the security market line, and the portfolio holdings. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (176)

Downloads: (external link)
http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:2:y:1989:i:2:p:157-88

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().