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Risky arbitrage, asset prices, and externalities

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  • Cuong Van

    ()

  • Frank Page

    ()

  • Myrna Wooders

    ()

Abstract

We introduce a no-risky-arbitrage price (NRAP) condition for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that the NRAP condition is sufficient for the existence of competitive equilibrium in the presence of externalities. Moreover, we show that if all risky arbitrages are utility increasing, then the NRAP condition characterizes competitive equilibrium in the presence of externalities.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 33 (2007)
Issue (Month): 3 (December)
Pages: 475-491

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Handle: RePEc:spr:joecth:v:33:y:2007:i:3:p:475-491

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Related research

Keywords: C62; D50; Risky arbitrage; Competitive equilibrium; Viable asset prices;

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References

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  1. Allouch, Nizar, 2002. "An equilibrium existence result with short selling," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 81-94, April.
  2. Hart, Oliver D., 1974. "On the existence of equilibrium in a securities model," Journal of Economic Theory, Elsevier, vol. 9(3), pages 293-311, November.
  3. Brown, Donald J & Werner, Jan, 1995. "Arbitrage and Existence of Equilibrium in Infinite Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 101-14, January.
  4. Bonnisseau, J.M. & Medecin, J.-P., 2000. "Existence of Marginal Pricing Equilibria in Economies with Externalities and Non Convexities," Papiers d'Economie Mathématique et Applications 2000.84, Université Panthéon-Sorbonne (Paris 1).
  5. BONNISSEAU, Jean-Marc & CORNET, Bernard, . "Existence of marginal cost pricing equilibria in economies with several nonconvex firms," CORE Discussion Papers RP -941, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Bonnisseau, J.M., 1995. "Existence of Equilibria in Economies with Externalities and Non Convexities," Papiers d'Economie Mathématique et Applications 95.45, Université Panthéon-Sorbonne (Paris 1).
  7. Nielsen, Lars Tyge, 1989. "Asset Market Equilibrium with Short-Selling," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 467-73, July.
  8. Dana, Rose-Anne & Le Van, Cuong & Magnien, François, 1999. "On the Different Notions of Arbitrage and Existence of Equilibrium," Economics Papers from University Paris Dauphine 123456789/6228, Paris Dauphine University.
  9. repec:hal:cesptp:halshs-00250167 is not listed on IDEAS
  10. Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
  11. Hammond, Peter J., 1983. "Overlapping expectations and Hart's conditions for equilibrium in a securities model," Journal of Economic Theory, Elsevier, vol. 31(1), pages 170-175, October.
  12. PageJr., Frank H. & Wooders, Myrna H. & Monteiro, Paulo K., 2000. "Inconsequential arbitrage," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 439-469, December.
  13. Werner, Jan, 1987. "Arbitrage and the Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 55(6), pages 1403-18, November.
  14. Page, Frank Jr., 1987. "On equilibrium in Hart's securities exchange model," Journal of Economic Theory, Elsevier, vol. 41(2), pages 392-404, April.
  15. Le Van, C. & Page, F.H.Jr. & Wooders, M., 2001. "Arbitrage and Equilibrium in Economies with Externalities," The Warwick Economics Research Paper Series (TWERPS) 588, University of Warwick, Department of Economics.
  16. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
  17. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-23, November.
  18. Monique Florenzano, 2008. "General equilibrium," Documents de travail du Centre d'Economie de la Sorbonne b08005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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