Ann Oper Res https://doi.org/10.1007/s10479-018-2909-9 S.I.: RISK IN FINANCIAL ECONOMICS An intertemporal capital asset pricing model under incomplete information and short sales 1,2 3 Mondher Bellalah · Detao Zhang © Springer Science+Business Media, LLC, part of Springer Nature 2018 Abstract This paper provides the inter-temporal capital asset pricing model with incomplete information and short sales constraints. We derive the general equilibrium market equation and the security market line of the “classical” capital asset pricing model in continuous time in the presence of incomplete information and short sales. Keywords Inter-temporal capital asset pricing · Information uncertainty · Short sales JEL Classiﬁcation G11 · G12 1 Introduction Merton (1973) develops an equilibrium model of the capital market. Merton’s (1973) model states that the expected excess return on any asset is given by a “multi-beta” version of the CAPM with the number of betas being equal to one plus the number of state variables. Breeden (1979) shows that Merton’s multi-beta pricing equation can collapse into a single beta equation where the expected excess return on any security, is proportional to its beta, with respect to aggregate consumption alone. Merton (1987) develops a model of capital market equilibrium with incomplete informa- tion, CAPMI, to
Annals of Operations Research – Springer Journals
Published: May 30, 2018
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