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Equilibrium in a Capital Asset Market

Econometrica · 1966 · Vol. 34(4) · pp. 768–768

Abstract

This paper investigates the properties of a for risky assets on the basis of a simple model of general equilibrium of exchange, where individual investors seek to maximize preference functions over expected yield and variance of yield on their port- folios. A theory of risk premiums is outlined, and it is shown that general equilibrium implies the existence of a so-called market line, relating per dollar expected yield and standard deviation of yield. The concept of price of risk is discussed in terms of the slope of this line.

Economic theories and models Financial Markets and Investment Strategies Stochastic processes and financial applicationsEconomicsAsset (computer security)Capital asset pricing modelCapital (architecture)Financial economicsConsumption-based capital asset pricing modelMonetary economicsGeographyComputer science

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An intertemporal asset pricing model with stochastic consumption and investment opportunities