Capital market equilibrium with heterogeneous investors

Haim Shalit, Shlomo Yitzhaki

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


As a two-parameter model that satisfies stochastic dominance, the mean-extended Gini model is used to build efficient portfolios. The model quantifies risk aversion heterogeneity in capital markets. In a simple Edgeworth box framework, we show how capital market equilibrium is achieved for risky assets. This approach provides a richer basis for analysing the pricing of risky assets under heterogeneous preferences. Our main results are: (1) identical investors, who use the same statistic to represent risk, hold identical portfolios of risky assets equal to the market portfolio; and (2) heterogeneous investors as expressed by the variance or the extended Gini hold different risky assets in portfolios, and therefore no one holds the market portfolio.

Original languageEnglish
Pages (from-to)757-766
Number of pages10
JournalQuantitative Finance
Issue number6
StatePublished - 1 Sep 2009


  • Applied mathematical finance
  • CAPM
  • Market efficiency
  • Market portfolio
  • Stochastic dominance


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