Investment and arbitrage opportunities with short sales constraints

In this paper we consider a family of investment projects defined by their deterministic cash flows. We assume stationarity-that is, projects available today are the same as those available in the past. In this framework, we prove that the absence of arbitrage opportunities is equivalent to the existence of a discount rate such that the net present value of all projects is nonpositive if the projects cannot be sold short and is equal to zero otherwise. Our result allows for an infinite number of projects and for continuous as well as discrete cash hows, generalizing similar results established by Canter and Lippman (1983, 1995) and Adler and Gale (1997) in a discrete time framework and for a finite number of projects.