Real indeterminacy with financial assets
The purpose of this paper, which takes up after D. Cass (1984a, 1984b) is to find the degree of real indeterminacy inherent in models with purely financial assets. We solve the problem for the case where there are enough traders (precisely, the number of traders is larger than the number of bonds) and the asset returns structure is in general position. We find that if the number of bonds is non-zero and fewer than the number of states then, generically, the number of dimensions of real indeterminacy is S-1, one less than the number of states. There is something of a surprise in the above result, namely the dimension of real indeterminacy does not depend on the number of bonds (except in the two limit cases). Indeed one initial conjecture was S-B. This points to an intriguing qualitative discontinuity at the complete market configuration. If markets are financially complete then the model is determinate. Let just one bond be missing and the model become highly indeterminate. Thus, in this sense, the complete markets hypothesis lacks robustness.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cass, David, 2006.
"Competitive equilibrium with incomplete financial markets,"
Journal of Mathematical Economics,
Elsevier, vol. 42(4-5), pages 384-405, August.
- David Cass, 2006. "Competitive Equilibrium with Incomplete Financial Markets," PIER Working Paper Archive 06-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
- Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:47:y:1989:i:1:p:22-38. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.