Existence of Equilibrium in CAPM: Further Results

By Lars Tyge Nielsen

Nationaløkonomisk Tidsskrift 130 (1992), 189-197

Abstract

In the mean-variance capital asset pricing model (CAPM), non-monotonicity of preferences may lead to satiation and non-existence of equilibrium if there is no riskless asset. This paper generalizes one of the earlier existence results for general equilibrium. Among other things, the restrictive assumption that utility be concave in mean and variance is dispensed with. In addition, it is observed that there virtually always exists an equality-constrained general equilibrium, where investors maximize subject to an equality budget constraint.