Template-Type: ReDIF-Article 1.0
Author-Name: Ning Sun
Author-Name-First: Ning
Author-Name-Last: Sun
Author-Workplace-Name: Faculty of System Science and Technology, Akita Prefectural University
Author-Workplace-Location: Honjo City, Akita 015-0055, Japan
Author-Email: sun@akita-pu.ac.jp
Author-Name: Zaifu Yang
Author-Name-First: Zaifu
Author-Name-Last: Yang
Author-Workplace-Name: Cowles Foundation for Research in Economics, Yale University
Author-Workplace-Location: New Haven, CT 06520-8281, USA
Author-Email: zaifu.yang@yale.edu
Title: Existence of Equilibrium and Zero-Beta Pricing Formula in the Capital Asset Pricing Model with Heterogeneous Beliefs
Abstract: We study a mean-variance capital asset pricing model (CAPM) in which investors have different probability beliefs about assets returns and different attitudes towards risk, all assets are risky, short-selling is allowed and satiation is possible. First, we prove that there exists a competitive equilibrium in the model under a rather general condition. This condition indicates a simple relationship among initial endowment vectors, risk aversion ratio functions, perceived mean vectors and covariance matrices of all investors. Secondly, we derive a zero-beta pricing formula for the model which generalizes the well known BlackĄ¯s zero-beta pricing formula. In addition, we find in closed form an equilibrium price vector expressed in terms of perceived mean vectors, covariance matrices, and initial endowments of all investors.
Classification-JEL: C61, C62, C68, D52, D84, G11, G12
Keywords: Capital asset pricing model, Heterogeneity, Equilibrium theorem, Pricing formula
Journal: Annals of Economics and Finance
Pages: 51-71
Volume: 4
Issue: 1
Number: 4
Year: 2003
Month: May
File-URL: http://www.aeconf.net/Articles/May2003/aef040104.pdf
File-Format: Application/pdf
File-URL: http://down.aefweb.net/AefArticles/aef040104.pdf
File-Format: Application/pdf
Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:51-71