A Capital Asset Pricing Model (CAPM) with Trading Constraints and Price Bubbles

Download or read book A Capital Asset Pricing Model (CAPM) with Trading Constraints and Price Bubbles written by Robert A. Jarrow and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives an equilibrium capital asset pricing model (CAPM) in a market with trading constraints and asset price bubbles. The asset price processes are general semimartingales including Markov jump-diffusion processes as special cases, and the trading constraints considered include short sale restrictions, borrowing constraints, and margin requirements, among others. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The implications for empirical testing are that additional systematic risk factors will exist in a market with trading constraints and price bubbles as contrasted with an otherwise equivalent unconstrained market with no price bubbles.