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Equilibrium in CAPM without a riskless asset

Author: Nielsen, Lars Tyge INSEAD Area: FinanceIn: Review of Economic Studies, vol. 57, no. 190, April 1990 Language: EnglishDescription: p. 315-324.Type of document: INSEAD ArticleNote: Please ask the Library for this articleAbstract: In the mean-variance CAPM without a riskless asset, the possibility of satiation sometimes leads to non-existence of general equilibrium. Moreover, because portfolio preferences are not necessarily monotone, equilibrium asset prices, when they exist, may be negative or zero. To demonstrate the possibility of non-existence, and to develop an intuitive understanding of when and why equilibrium does or does not exist, this paper fully investigates the special case of utility functions linear in mean and variance and partially extends the results to the general case
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In the mean-variance CAPM without a riskless asset, the possibility of satiation sometimes leads to non-existence of general equilibrium. Moreover, because portfolio preferences are not necessarily monotone, equilibrium asset prices, when they exist, may be negative or zero. To demonstrate the possibility of non-existence, and to develop an intuitive understanding of when and why equilibrium does or does not exist, this paper fully investigates the special case of utility functions linear in mean and variance and partially extends the results to the general case

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