Why the Market's Participants in the Modigliani-Miller Model are Markowitz Rational?
Aboura, Sofiane; Lépinette, Emmanuel (2014-06), Why the Market's Participants in the Modigliani-Miller Model are Markowitz Rational?. https://basepub.dauphine.fr/handle/123456789/13802
TypeDocument de travail / Working paper
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Abstract (EN)The seminal works of Modigliani-Miller and Markowitz-Sharpe remain the cornerstone of financial theory. We reconcile these seemingly distinct approaches, in a unified theorem, by showing that the agents acting on the market defined by Modigliani-Miller are Markowitz rational when deriving the arbitrage reasoning in terms of Sharpe ratios. As a main policy implication, we show that government guarantees modify market's equilibrium as they provoke arbitrage opportunities.
Subjects / KeywordsModigliani-Miller; Markowitz; Capital structure; Regulation
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