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Stability under learning of equilibria in financial markets with supply information

Author

Listed:
  • Maik Heinemann

    () (University of Lüneburg)

Abstract

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.

Suggested Citation

  • Maik Heinemann, 2010. "Stability under learning of equilibria in financial markets with supply information," Economics Bulletin, AccessEcon, vol. 30(1), pages 383-391.
  • Handle: RePEc:ebl:ecbull:eb-09-00731
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P33.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-1430, November.
    3. 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, March.
    4. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    5. R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March.
    6. 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.
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    Cited by:

    1. Manzano, Carolina & Vives, Xavier, 2011. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 346-369.

    More about this item

    Keywords

    Recursive Least Squares Learning; Eductive Stability; Rational Expectations; Private Information;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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