Template-type: ReDif-Paper 1.0
Author-Name: Herings,O. Jean-Jacques
Author-Name: Kubler,Felix
Author-workplace-name: METEOR
Title: The Robustness of CAPM-A Computational Approach
Abstract: In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically approximate equilibria for a variety of different specifications for preferences, endowments and dividends and compare the equilibrium prices and portfolio-holdings to the predictions of CAPM. While we show that CAPM cannot hold exactly for the chosen specification, it turns out that pricing-errors are extremely small. Furthermore, two-fund separation holds approximately.
Keywords: financial economics and financial management ; 
Series: Research Memoranda
Creation-Date: 2000
Number: 035
File-URL: http://arnop.unimaas.nl/show.cgi?fid=584
File-Format: application/pdf
File-Size: 396687
Handle: RePEc:unm:umamet:2000035