Wenzelburger, Jan (2008): A Note on the Twofund Separation Theorem.

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Abstract
This note contains two remarks on the traditional capital asset pricing model (CAPM) with one riskfree asset.
Firstly, an elementary proof of the twofund separation theorem is provided showing that assetdemand may become undefined if the limiting slope of the investor's indifference curves is finite.
Secondly, it is shown that an additional limiting condition on the risk aversion is generally necessary to guarantee existence of an equilibrium in the CAPM with one riskfree asset. The role of these two limiting conditions seems to have been overlooked in the established literature.
A generalized existence result is formulated which allows for the case in which in equilibrium not all investors participate in the market for risky assets.
Item Type:  MPRA Paper 

Original Title:  A Note on the Twofund Separation Theorem 
Language:  English 
Keywords:  Portfolio choice, CAPM, risk aversion, equilibrium, market participation 
Subjects:  G  Financial Economics > G1  General Financial Markets > G11  Portfolio Choice ; Investment Decisions G  Financial Economics > G1  General Financial Markets > G10  General C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62  Existence and Stability Conditions of Equilibrium 
Item ID:  11014 
Depositing User:  Jan Wenzelburger 
Date Deposited:  14 Oct 2008 04:52 
Last Modified:  27 Sep 2019 21:09 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/11014 