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Proof of the Existence of Speculative Equilibria

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  • Matthew O. Jackson

Abstract

The existence of speculative equilibria is proven in a simple overlapping generations, infinite horizon economy. In equilibrium, all agents bid assets according to increasing functions of private information which is uncorrelated with the fundamental value (dividend stream) of the asset. This is a unique best response to the strategies of the other agents, which implies that speculative information is valuable.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1003.

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Date of creation: Aug 1992
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Handle: RePEc:nwu:cmsems:1003

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Web page: http://www.kellogg.northwestern.edu/research/math/
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  1. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  2. Peck, James & Shell, Karl, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 1011-29, October.
  3. Peck, James & Shell, Karl, 2001. "Equilibrium Bank Runs," Working Papers 01-10r, Cornell University, Center for Analytic Economics.
  4. Forges, F., 1991. "Correlated equilibrium and sunspot equilibrium," CORE Discussion Papers 1991053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Spear, Stephen E, 1989. "Are Sunspots Necessary?," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 965-73, August.
  6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  7. James Peck, 1986. "On the Existence of Sunspot Equilibria in an Overlapping Generations Model," Discussion Papers 678, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Jackson, Matthew & Peck, James, 1991. "Speculation and price fluctuations with private, extrinsic signals," Journal of Economic Theory, Elsevier, vol. 55(2), pages 274-295, December.
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Cited by:
  1. Matthew Spiegel, 1996. "Stock Price Volatility in a Multiple Security Overlapping Generations Model," Finance 9608002, EconWPA.

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