Stability under Learning of Equilibria in Financial Markets with Supply Information
AbstractIn a recent paper Ganguli and Yang  demonstrate, that there can exist multiple equilibria in a financial market model á la Grossman and Stiglitz  if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important respects from the usual equilibrium of the Grossman–Stiglitz type which still exists in this model. This note shows that these additional equilibria are always unstable under learning. This is true for both eductive learning following Guesnerie  and adaptive learning via least–squares estimation (cf. Marcet and Sargent  or Evans and Honkapohja ). Regarding the original Grossman–Stiglitz type equilibrium, the stability results are less clear cut, since this equilibrium might be unstable under eductive learning while it is always stable under adaptive learning.
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Bibliographic InfoPaper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 122.
Length: 14 pages
Date of creation: Mar 2009
Date of revision:
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Recursive Least Squares Learning; Eductive Stability; Rational Expectations; Private Information;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-28 (All new papers)
- NEP-CTA-2009-03-28 (Contract Theory & Applications)
- NEP-ORE-2009-03-28 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanford J Grossman & Joseph E Stiglitz, 1997.
"On the Impossibility of Informationally Efficient Markets,"
Levine's Working Paper Archive
1908, David K. Levine.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
- Jayant Vivek Ganguli & Liyan Yang, 2009. "Complementarities, Multiplicity, and Supply Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 90-115, 03.
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