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Positive Prices in CAPM
Article first published online: 30 APR 2012
1992 The American Finance Association
The Journal of Finance
Volume 47, Issue 2, pages 791–808, June 1992
How to Cite
NIELSEN, L. T. (1992), Positive Prices in CAPM. The Journal of Finance, 47: 791–808. doi: 10.1111/j.1540-6261.1992.tb04411.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Some equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. 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 exogenous parameters and variables, and 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.