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Existence of equilibrium in CAPM

Author: Nielsen, Lars Tyge INSEAD Area: Finance Series: Working Paper ; 90/25/FIN/EPS Publisher: Fontainebleau : INSEAD, 1990.Language: EnglishDescription: 15 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: In the mean-variance capital asset pricing model (CAPM), non-monotonicity of preferences may lead to satiation, and short-selling as well as satiation may lead to non-existence of equilibrium. This paper identifies several sets of sufficient conditions for equilibrium to exist. 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
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In the mean-variance capital asset pricing model (CAPM), non-monotonicity of preferences may lead to satiation, and short-selling as well as satiation may lead to non-existence of equilibrium. This paper identifies several sets of sufficient conditions for equilibrium to exist. 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

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