Competitive Stock Markets
- 1 April 1983
- journal article
- Published by Oxford University Press (OUP) in The Review of Economic Studies
- Vol. 50 (2) , 305-330
- https://doi.org/10.2307/2297418
Abstract
In a perfectly competitive general equilibrium model with many periods, incomplete markets, and trading through time, we show: current net market value maximization is unanimously favoured by shareholders as the objective of the firm this corresponds to maximizing a relatively simple present discounted value formula the formula is used to derive an Arrow-Lind-type result on the absence of a risk premium in the discount factors for valuing investments whose risk is uncorrelated with social risk competitive stock markets are constrained Pareto optimal in the sense of Diamond.Keywords
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