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Welfare effects of short-sale constraints under heterogeneous beliefs

  • Hiroyuki Nakata

    ()

This paper examines the welfare effects of short-sale constraints in an overlapping generations model of a financial economy with heterogeneous beliefs by focussing on the case of rational beliefs in the sense of Kurz (Econ Theory 4:877–900, 1994 ). To measure the social welfare, we adopt a measure that is based on the ex post social welfare concept in the sense of Hammond (Economica 48:235–250, 1981 ), instead of the standard ex ante criterion, since heterogeneity in beliefs invalidates it. Simulation results indicate the existence of socially optimal short-sale constraints. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00199-012-0691-5
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 53 (2013)
Issue (Month): 2 (June)
Pages: 283-314

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Handle: RePEc:spr:joecth:v:53:y:2013:i:2:p:283-314
DOI: 10.1007/s00199-012-0691-5
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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  1. Ross M. Starr, 1973. "Optimal Production and Allocation under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 87(1), pages 81-95.
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  17. Eduardo L. Giménez, 2003. "Complete and incomplete markets with short-sale constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 195-204, 01.
  18. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
  19. Michael Gallmeyer & Burton Hollifield, 2008. "An Examination of Heterogeneous Beliefs with a Short-Sale Constraint in a Dynamic Economy," Review of Finance, European Finance Association, vol. 12(2), pages 323-364.
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