Why are asset pricing models equilibrium models? I have several times heard scholars refer to asset pricing models (such as the CAPM) as a type of equilibrium model. Why exactly is this the case? Does this simply mean that equilibrium is a necessary condition we need to accept for the model relationship to hold? Can this be shown formally?
An equilibrium asset pricing model is one in which the asset prices jointly satisfy the requirement that the quantities of each asset supplied and the quantities demanded must be equal at that price. It is as opposed to a partial equilibrium model where the price of the asset (or at least some assets) are determined outside of the model.