Abstract
A steady state economy is considered and the equilibrium of its capital market is studied. Demand and supply are represented by means of two trade offs between average return and risk; both are met when equilibrium is attained. Some well known results about average return and risk are more readily obtained and new results about capital asset pricing are achieved. When prices are other than equilibrium ones, investors know how to perform portfolio selection so that convergence to equilibrium is assured. Insights are also taken into the link between book and market rates of return. Although microeconomically founded, the resulting model is as simple as the CAPM by Sharpe, Lintner, and Mossin.