Divergent Rates, Financial Restrictions and Relative Prices in Capital Market Equilibrium

@inproceedings{Cheng1980DivergentRF,
  title={Divergent Rates, Financial Restrictions and Relative Prices in Capital Market Equilibrium},
  author={Pao Lun Cheng},
  year={1980}
}
The mean-variance capital asset pricing model (CAPM) of Sharpe and Lintner was extended by Brennan [3] to incorporate divergent borrowing and lending rates. He found that in equilibrium the security market line (SML) has the same structure as the SML under the single-rate CAPM of Sharpe and Lintner. That is, the expected return of a security or a portfolio remains linear in its systematic risk, with the intercept replaced by an equivalent risk-free return, which is an average of the divergent… CONTINUE READING

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