Stability under learning of equilibria in financial markets with supply information
In a recent paper Ganguli/Yang (2009) demonstrate, that there can exist multiple equilibria in a financial market model a' la Grossman/Stiglitz (1980) 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 eductive learning (cf. Guesnerie (2002)) and adaptive learning via least-squares estimation (cf. Marcet/Sargent (1988) or Evans/Honkapohja (2001)). 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.
Volume (Year): 30 (2010)
Issue (Month): 1 ()
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- Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November.
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9, University of Lüneburg, Institute of Economics.
- Gabriel Desgranges & Maik Heinemann, 2004. "Strongly rational expectations equilibria with endogenous acquisition of information," Computing in Economics and Finance 2004 35, Society for Computational Economics.
- Heinemann, Maik, 2009. "E-stability and stability of adaptive learning in models with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 33(12), pages 2001-2014, December.
- R. Guesnerie, 2002.
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- Guesnerie, R., 1999. "Anchoring Economic Predictions in Common Knowledge," DELTA Working Papers 1999-06, DELTA (Ecole normale supérieure).
- 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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