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Risky Arbitage, Asset Prices, and Externalities

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  • Cuong Le Van

    ()
    (CNRS, CERMSEM, University of Paris 1)

  • Frank H. Page, Jr.

    ()
    (Department of Finance, University of Alabama)

  • Myrna Wooders

    ()
    (Department of Economics, Vanderbilt University)

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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File URL: http://www.accessecon.com/pubs/VUECON/vu05-w24.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0524.

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Date of creation: Sep 2005
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Handle: RePEc:van:wpaper:0524

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Risky arbitrage; competitive equilibria; viable asset prices;

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  1. Brown, Donald & Werner, Jan, 1993. "Arbitrage and Existence of Equilibrium in Infinite Asset Markets," Working Papers 825, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. repec:hal:cesptp:halshs-00250167 is not listed on IDEAS
  3. Grandmont, Jean-Michel, 1977. "Temporary General Equilibrium Theory," Econometrica, Econometric Society, vol. 45(3), pages 535-72, April.
  4. 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.
  5. 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.
  6. Allouch, Nizar, 2002. "An equilibrium existence result with short selling," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 81-94, April.
  7. 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).
  8. Bonnisseau, Jean-Marc & Medecin, Jean-Philippe, 2001. "Existence of marginal pricing equilibria in economies with externalities and non-convexities," Journal of Mathematical Economics, Elsevier, vol. 36(4), pages 271-294, December.
  9. Page, F.H.Jr. & Wooders, M.H. & Monteiro, P.K., 1999. "Inconsequential Arbitrage," The Warwick Economics Research Paper Series (TWERPS) 561, University of Warwick, Department of Economics.
  10. Page, Frank Jr., 1987. "On equilibrium in Hart's securities exchange model," Journal of Economic Theory, Elsevier, vol. 41(2), pages 392-404, April.
  11. Dana, Rose-Anne & Le Van, Cuong & Magnien, Francois, 1999. "On the Different Notions of Arbitrage and Existence of Equilibrium," Journal of Economic Theory, Elsevier, vol. 87(1), pages 169-193, July.
  12. Werner, Jan, 1987. "Arbitrage and the Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 55(6), pages 1403-18, November.
  13. Nielsen, Lars Tyge, 1989. "Asset Market Equilibrium with Short-Selling," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 467-73, July.
  14. 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).
  15. 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.
  16. 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.
  17. 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.
  18. 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.
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