Capital Markets: Theory and Evidence

Bell Journal of Economics and Management Science, Vol. 3, No. 2, pp. 357-398, Autumn 1972

72 Pages Posted: 24 Mar 2003

See all articles by Michael C. Jensen

Michael C. Jensen

Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit

Abstract

This paper is a review of the foundations and current state of mean-variance capital market theory. This work, whose foundations lie in the mean-variance portfolio model of Markowitz, deals with the determination of the prices of capital assets under conditions of uncertainty. The Sharpe-Lintner capital asset pricing model which forms the core of this body of literature is an investigation of the implications of the normative Markowitz model for the equilibrium structure of asset prices. The essential characteristics of these models are reviewed along with the current state of the empirical evidence bearing on them. Many of the recent extensions of the theory are also reviewed and some attempt is made to integrate these extensions with the currently available empirical evidence.

Keywords: mean-variance capital asset pricing model, capital market theory, equilibrium, systematic risk, riskless borrowing, riskless lending, market efficiency

Suggested Citation

Jensen, Michael C., Capital Markets: Theory and Evidence. Bell Journal of Economics and Management Science, Vol. 3, No. 2, pp. 357-398, Autumn 1972, Available at SSRN: https://ssrn.com/abstract=350429 or http://dx.doi.org/10.2139/ssrn.350429

Michael C. Jensen (Contact Author)

Harvard Business School ( email )

Soldiers Field
Negotiations, Organizations & Markets
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United States

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