ON CAPITAL ASSET PRICES: COMMENT.

In a recent article in this Journal, W. F. Sharpe suggests that the model of investment behavior developed by Markowitz, Tobin and others can be extended in order "to construct a market equilibrium theory of asset prices under conditions of risk.'' His analysis, however, stops short of providing such an extension. His main concern is to develop what he calls "the capital market line" and to discuss the relationship between prices of assets and various components of their risk. In this note, we show that models of the form considered by Markowitz and Tobin can explain how asset prices are simultaneously determined by the interactions of investors seeking to maximize utility. In Section II below, we develop a simple modal of two assets. A general model of n assets is developed in the Appendix. [ABSTRACT FROM AUTHOR]