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Positive prices in CAPM

Author: Nielsen, Lars Tyge INSEAD Area: FinanceIn: Journal of Finance, vol. 47, no. 2, June 1992 Language: EnglishDescription: p. 791-808.Type of document: INSEAD ArticleNote: Please ask the Library for this articleAbstract: In the mean-variance capital asset pricing model (CAPM), some equilibrium prices may be negative because of non-monotonicity of preferences. This paper identifies several sets of sufficient conditions for prices to be positive. The nature of the central conditions is to impose bounds on the investors' degree of risk aversion, as measured by the marginal rate of substitution between mean and standard deviation of return. These bounds do not need to hold globally, but only in a relevant range of portfolios or combinations of mean and standard deviation. The relevant range is specified on the basis of exogenously given parameters and variables, and it is such that it must contain any endogenously determined equilibrium. The bounds on risk aversion ensure that the preferences for assets are sufficiently well-behaved within the relevant range
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In the mean-variance capital asset pricing model (CAPM), some equilibrium prices may be negative because of non-monotonicity of preferences. This paper identifies several sets of sufficient conditions for prices to be positive. The nature of the central conditions is to impose bounds on the investors' degree of risk aversion, as measured by the marginal rate of substitution between mean and standard deviation of return. These bounds do not need to hold globally, but only in a relevant range of portfolios or combinations of mean and standard deviation. The relevant range is specified on the basis of exogenously given parameters and variables, and it is such that it must contain any endogenously determined equilibrium. The bounds on risk aversion ensure that the preferences for assets are sufficiently well-behaved within the relevant range

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