Arbitrage and price revelation with private beliefs
AbstractWe extend the Cornet-de Boisdeffre (2002-2009) asymmetric information finite dimensional model to a more general setting, where agents may forecast prices with some private uncertainty. This new model drops both Radner's (1972-1979) classical, but restrictive, assumptions of rational expectations and perfect foresight. It deals with sequential financial equilibrium, when agents, unaware of how equilibrium prices or quantities are determined, are prone to uncertainty between - possibly uncountable - forecasts. Under perfect foresight, the extended model coincides with Cornet-de Boisdeffre's (2002-2009). Yet, when anticipations are private, we argue any element of a typically uncountable ‘minimum uncertainty set’ may prevail as an equilibrium price tomorrow. This outcome is inconsistent with perfect foresight and appeals for a broader definition of sequential equilibrium, which we propose hereafter. By standard techniques, we embed and extend Cornet-de Boisdeffre's (2002-2009) results, to the infinite dimensional model. The aim is to lay foundations for another paper, showing that the concept of sequential equilibrium we propose may solve the classical existence problems of the perfect foresight model, following Hart (1974).
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.
Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 12053.
Length: 28 pages
Date of creation: Jul 2012
Date of revision:
Contact details of provider:
Postal: 106-112 boulevard de l'Hôpital 75 647 PARIS CEDEX 13
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://centredeconomiesorbonne.univ-paris1.fr/
More information through EDIRC
Sequential equilibrium; temporary equilibrium; perfect foresight; expectations; incomplete markets; asymmetric information; arbitrage.;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
This paper has been announced in the following NEP Reports:
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.:
- 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.
- Bernard Cornet & Lionel De Boisdeffre, 2009.
"Elimination of arbitrage states in asymmetric information models,"
Documents de travail du Centre d'Economie de la Sorbonne
09078, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Bernard Cornet & Lionel Boisdeffre, 2009. "Elimination of arbitrage states in asymmetric information models," Economic Theory, Springer, vol. 38(2), pages 287-293, February.
- Bernard Cornet & Lionel De Boisdeffre, 2005. "Elimination Of Arbitrage States In Asymmetric Information Models," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200504, University of Kansas, Department of Economics, revised Feb 2005.
- Bernard Cornet & Lionel D Boisdeffre, 2009. "Elimination of Arbitrage States in Asymmetric Information Models," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200912, University of Kansas, Department of Economics, revised Dec 2009.
- Cornet, Bernard & De Boisdeffre, Lionel, 2002. "Arbitrage and price revelation with asymmetric information and incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 38(4), pages 393-410, December.
- Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
- 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
- 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.
- Yves Balasko, 2003.
"Temporary financial equilibrium,"
Springer, vol. 21(1), pages 1-18, 01.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.