Equilibrium Prices of the Market Portfolio in the CAPM with Incomplete Financial Markets

Chiaki Hara ()
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Chiaki Hara: Institute of Economic Research, Kyoto University

No 1005, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: In the Capital Asset Pricing Model, we consider how introducing new assets will affect the prices of the existing ones. We prove that introducing new assets into financial markets increases the relative price of the market portfolio with respect to the risk-free bond if the elasticity of the marginal rates of substitution of the mean for standard deviation with respect to the latter is greater than one for every consumer; the relative price of the market portfolio decreases if the elasticity is less than one; and the relative price is left unchanged if the elasticity is equal to one.

Keywords: Capital Asset Pricing Model; generalequilibriumtheory; incomplete asset markets; nancialinnovation; expectedutility (search for similar items in EconPapers)
JEL-codes: D51 D52 G11 G12 G13 (search for similar items in EconPapers)
Pages: 34pages
Date: 2018-10
New Economics Papers: this item is included in nep-fmk and nep-upt
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