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Encyclopedia of Finance pp 724–728Cite as

The Le Chatelier Principle of the capital market equilibrium

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Abstract

This paper purports to provide a theoretical underpinning for the problem of the Investment Company Act. The theory of the Le Chatelier Principle is well-known in thermodynamics: The system tends to adjust itself to a new equilibrium as far as possible. In capital market equilibrium, added constraints on portfolio investment on each stock can lead to inefficiency manifested in the right-shifting efficiency frontier. According to the empirical study, the potential loss can amount to millions of dollars coupled with a higher risk-free rate and greater transaction and information costs.

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Author information

Authors and Affiliations

  1. Clarion University of Pennsylvania, Clarion, USA

    Chin-Wei Yang

  2. National Dong Hwa University, Hualien, Taiwan

    Ken Hung

  3. The Fox Consultant Incorporated, Westminster, USA

    John A. Fox

Authors
  1. Chin-Wei Yang
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  2. Ken Hung
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  3. John A. Fox
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Editor information

Editors and Affiliations

  1. Rutgers University, New Brunswick/Piscataway, USA

    Cheng-Few Lee

  2. San Francisco State University, San Francisco, USA

    Alice C. Lee

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© 2006 Springer Science+Business Media, Inc.

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Yang, CW., Hung, K., Fox, J.A. (2006). The Le Chatelier Principle of the capital market equilibrium. In: Lee, CF., Lee, A.C. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-26336-6_74

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  • DOI: https://doi.org/10.1007/978-0-387-26336-6_74

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-0-387-26284-0

  • Online ISBN: 978-0-387-26336-6

  • eBook Packages: Business and Economics

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