Asset Market Equilibrium With Short-Selling

By Lars Tyge Nielsen

Review of Economic Studies 56, 3 (1989), 467-473

Abstract

This paper presents simple conditions and a simple proof of the existence of equilibrium in asset markets where short-selling is allowed and satiation is possible. Unlike standard nonsatiation assumptions, the one used here is weak enough to be reasonable in the mean-variance capital asset pricing model and in asset market models where investors maximize expected utility and where total returns to individual assets may be negative.