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Capital Market Equilibrium with Divergent Borrowing and Lending Rates

Published online by Cambridge University Press:  19 October 2009

Extract

The Capital Asset Pricing Model of Sharpe [10, 1964], Lintner [8, 1965], and Mossin [9, 1966] showed how it was possible to derive under fairly stringent assumptions the conditions for equilibrium in a market for risky assets. Recent work has been directed at relaxing these assumptions, and this paper extends the progress made thus far by deriving some properties of capital market equilibrium when investors are faced with divergent borrowing and lending rates and when these rates may vary among investors.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 1971

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References

[1]Black, Fischer. “Capital Market Equilibrium with No Riskless Borrowing or Lending.” (Forthcoming in Journal of Business).Google Scholar
[2]Black, Fischer; Jensen, Michael C.; and Scholes, Myron S.. “The Capital Asset Pricing Model: Some Empirical Tests.” University of Rochester Working Paper No. S7O3O, November 1970.Google Scholar
[3]Brennan, Michael J. “Capital Asset Pricing and the Structure of Security Returns.” Unpublished manuscript, January 1971.Google Scholar
[4]Friend, I., and Blume, M.. “Measurement of Portfolio Performance under Uncertainty.” American Economic Review, Vol. LX, No. 4, September 1970, pp. 561575.Google Scholar
[5]Friend, I. “A New Look at the Capital Asset Pricing Model.” Unpublished manuscript, 1971.Google Scholar
[6]Hamada, Robert S.Portfolio Analysis, Market Equilibrium, and Corporate Finance.” Journal of Finance, Vol. 24, No. 1, March 1969, pp. 1332.CrossRefGoogle Scholar
[7]Jensen, Michael C. “The Foundations and Current State of Capital Market Theory.” In Studies in the Theory of Capital Markets, Jensen, M. C., ed., Praeger (forthcoming 1971).Google Scholar
[8]Lintner, John. “The Valuation of Risk Assets and' the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, Vol. XLVII, No. 1, February 1965, pp. 1337.CrossRefGoogle Scholar
[9]Mossin, Jan. “Equilibrium in a Capital Asset Market.” Econometrica, Vol. 34, No. 4, October 1966, pp. 768783.CrossRefGoogle Scholar
[10]Sharpe, William F.Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, Vol. XIX, No. 3, September 1964, pp. 425442.Google Scholar
[11]Vasicek, Oldrich A. “Capital Market Pricing Model with No Riskless Borrowing.” Unpublished manuscript, Wells Fargo Bank, March 1971.Google Scholar
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