IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v23y2004i3p553-568.html
   My bibliography  Save this article

Arbitrage and equilibrium in strategic security markets

Author

Listed:
  • Leonidas Koutsougeras
  • Konstantinos Papadopoulos

Abstract

In view of the fundamental price taking hypothesis, arbitrage is never compatible with equilibrium in Walrasian markets because the existence of an arbitrage opportunity in a competitive situation always leads to unbounded arbitrage activity. In strategic markets however, the mere effort of individuals to profit alters market clearing prices and thus distorts arbitrage opportunities as well. This observation suggests a different relationship between arbitrage and equilibrium, than in the competitive model. Indeed, we show that in such markets a spread between the cost of a portfolio and its returns is compatible with equilibrium. We provide an example of an equilibrium where a resourceless individual holds a portfolio with zero cost and positive return in every state. We further demonstrate via an asymptotic result, that no arbitrage is intimately related to price taking behaviour. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Leonidas Koutsougeras & Konstantinos Papadopoulos, 2004. "Arbitrage and equilibrium in strategic security markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(3), pages 553-568, March.
    • Handle: RePEc:spr:joecth:v:23:y:2004:i:3:p:553-568
    DOI: 10.1007/s00199-003-0373-4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00199-003-0373-4
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s00199-003-0373-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Andrés Carvajal, 2018. "Arbitrage pricing in non-Walrasian financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 951-978, December.
    3. Bernard Cornet & Ramu Gopalan, 2010. "Arbitrage and equilibrium with portfolio constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 227-252, October.
    4. Michail Anthropelos & Scott Robertson & Konstantinos Spiliopoulos, 2021. "Optimal investment, derivative demand, and arbitrage under price impact," Mathematical Finance, Wiley Blackwell, vol. 31(1), pages 3-35, January.
    5. Gaël Giraud & Hubert Stahn, 2008. "On Shapley–Shubik equilibria with financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(3), pages 469-496, June.
    6. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
    7. Andrés Carvajal & Marek Weretka, 2012. "No-arbitrage, state prices and trade in thin financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(1), pages 223-268, May.
    8. Manfred Nermuth, 2011. "Competing in Several Areas Simultaneously: The Case of Strategic Asset Markets," Games, MDPI, vol. 2(2), pages 1-26, April.
    9. Papadopoulos Konstantinos G., 2008. "Purchasing Power Parity with Strategic Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-32, June.
    10. Dimitris Voliotis, 2013. "Arbitrage, strategic inefficiency and self-regulation," Review of Economic Design, Springer;Society for Economic Design, vol. 17(1), pages 27-41, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:23:y:2004:i:3:p:553-568. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.