Competitive Stock Markets

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.