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Stability of equilibrium asset pricing models: A necessary and sufficient condition

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  • Borovička, Jaroslav
  • Stachurski, John

Abstract

We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Using local spectral radius methods, we connect the condition, and hence the problem of existence and uniqueness of asset prices, with the recent literature on stochastic discount factor decompositions. Our results include a globally convergent method for computing prices whenever they exist. Convergence of this iterative method itself implies both existence and uniqueness of equilibrium asset prices.

Suggested Citation

  • Borovička, Jaroslav & Stachurski, John, 2021. "Stability of equilibrium asset pricing models: A necessary and sufficient condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    • Handle: RePEc:eee:jetheo:v:193:y:2021:i:c:s0022053121000442
    DOI: 10.1016/j.jet.2021.105227
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    Cited by:

    1. Xu, Shaojun, 2023. "Behavioral asset pricing under expected feedback mode," International Review of Financial Analysis, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Asset pricing; Equilibrium prices; Spectral methods;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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