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The Structure of Equilibrium in an Asset Market with Variable Supply

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We characterize the structure of Nash equilibria in asset market games with variable asset supply. In equilibrium, di®erent assets have dif- ferent returns, and (risk neutral) investors with di®erent wealth hold portfolios with di®erent structures. In equilibrium, an asset's return is inversely related to the elasticity of its supply. The larger an in- vestor, the more diversi¯ed is his portfolio. Smaller investors do not hold all the assets, but achieve higher percentage returns. More gen- erally, our results can be applied also to other \multi-market games" in which several players compete in several arenas simultaneously, like multi-market Cournot oligopolies, or multiple rent-seeking games.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0804.

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Date of creation: Jun 2008
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Handle: RePEc:vie:viennp:0804

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Web page: http://www.univie.ac.at/vwl

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  1. Carlos Alós-Ferrer & Ana B. Ania, 2003. "The Asset Market Game," Vienna Economics Papers 0320, University of Vienna, Department of Economics.
  2. Hens, Thorsten & Reimann, Stefan & Vogt, Bodo, 2004. "Nash competitive equilibria and two-period fund separation," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 321-346, June.
  3. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
  4. Ania, Ana B., 2008. "Evolutionary stability and Nash equilibrium in finite populations, with an application to price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 472-488, March.
  5. Carlos Alós-Ferrer & Ana Ania, 2005. "The evolutionary stability of perfectly competitive behavior," Economic Theory, Springer, vol. 26(3), pages 497-516, October.
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