Undiversifiable Returns in a CAPM Economy

Peghe (Chrissopighi) Braila and Claude Wampach
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Claude Wampach: Banque Generale du Luxembourg

No 01-08, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The effects of endogenous undiversifiable investment and market structure changes on security pricing are analyzed within the GEI-CAPM (General Equilibrium with Incomplete Markets Capital Asset Pricing Model). Both the mutual fund and security market line theorems are extended conditional to a redefinition of the market portfolio. Relative prices of securities are still determined by covariances with the aggregate endowment but they fail to preserve the ``standard'' invariance result of the CAPM with quadratic utilities. Asset prices may change in response to financial innovation.

Keywords: General Equilibrium with Incomplete Markets; Portfolio Choice; Transfer Technology; Capital Asset Pricing Model (search for similar items in EconPapers)
JEL-codes: D50 D52 G11 G12 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001-07
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0108

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