Asset price bubbles in Arrow-Debreu and sequential equilibrium
AbstractPrice bubbles in an Arrow-Debreu equilibrium in an infinite-time economy are a manifestation of lack of countable additivity of valuation of assets. In contrast, the known examples of price bubbles in a sequential equilibrium in infinite time cannot be attributed to the lack of countable additivity of valuation. In this paper we develop a theory of valuation of assets in sequential markets (with no uncertainty) and study the nature of price bubbles in light of this theory. We define a payoff pricing operator that maps a sequence of payoffs to the minimum cost of an asset holding strategy that generates it. We show that the payoff pricing functional is linear and countably additive on the set of positive payoffs if and only if there is no Ponzi scheme, provided that there is no restriction on long positions in the assets. In the known examples of equilibrium price bubbles in sequential markets valuation is linear and countably additive. The presence of a price bubble means that the dividends of an asset can be purchased in sequential markets at a cost lower than the asset's price. We present further examples of equilibrium price bubbles in which valuation is nonlinear, or linear but not countably additive.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 15 (2000)
Issue (Month): 2 ()
Note: Received: 17 December 1998; revised version: 8 February 1999
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Kevin X.D. Huang & Jan Werner, 2002.
"Implementing Arrow-Debreu equilibria by trading infinitely-lived securities,"
Research Working Paper
RWP 02-08, Federal Reserve Bank of Kansas City.
- Kevin Huang & Jan Werner, 2004. "Implementing Arrow-Debreu equilibria by trading infinitely-lived securities," Economic Theory, Springer, vol. 24(3), pages 603-622, October.
- K. Huang & Z. Liu, . "Implementing Arrow-Debreu equilibria by trading infinitely lived securities," Working Papers 2000-21, Utah State University, Department of Economics.
- Kevin X. D. Huang & Jan Werner, 2000. "Implementing Arrow-Debreu Equilibria by Trading Infinitely-Lived Securities," Econometric Society World Congress 2000 Contributed Papers 1708, Econometric Society.
- Bejan, Camelia & Bidian, Florin, 2010. "Limited enforcement, bubbles and trading in incomplete markets," MPRA Paper 36819, University Library of Munich, Germany, revised 20 Feb 2012.
- Huang, Kevin X. D., 2002.
"On infinite-horizon minimum-cost hedging under cone constraints,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 27(2), pages 283-301, December.
- Kevin Huang, . "On infinite-horizon minimum-cost hedging under cone constraints," Working Papers 2000-22, Utah State University, Department of Economics.
- Stephen F. LeRoy, 2012. "Infinite Portfolio Strategies," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(4), December.
- Bidian, Florin & Bejan, Camelia, 2011. "Martingale properties of self-enforcing debt," MPRA Paper 36609, University Library of Munich, Germany, revised 12 Feb 2012.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.