## Theory of stock market equilibrium: problems of interpretation of theoretical concepts in applied analysis

**D.V. KADOCHNIKOV**

Candidate of Economics, Associate Professor of the Faculty of Liberal Arts and Sciences, St. Petersburg State University, St. Petersburg, Russia

TERRA ECONOMICUS, 2014, Vol. 12 (no. 4),

p. 68-78

The paper discusses key concepts of the theory of equilibrium pricing in the stock market, whose explicit and implicit interpretations in theoretical models (CAPM and its versions), on the one hand, and in empirical studies, on the other hand, are in fundamental conflict with each other. These concepts include «equilibrium», «equilibrium price/value», and even «stock market». In the context of the above-mentioned models, an equilibrium is a situation in which investors have no incentive to change the structure of their portfolios, ceteris paribus. Such an equilibrium, once achieved, does not imply any trade in stocks. Parameters of observed transactions with stocks thus should not be interpreted as equilibrium prices, despite widely spread research practice. The misinterpretation of the theoretical concepts leads to incorrect formulation of research questions in applied analysis, not to mention the widespread incorrect, if not mythological interpretations of the original theoretical models

**Keywords:**stock market; equilibrium; pricing of financial assets; methodology of economics

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**Publisher:**Southern Federal University

**Founder:**Southern Federal University

**ISSN:**2073-6606