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Trading Volumes in Dynamically Efficient Markets

Author

Listed:
  • Tony Berrada

    (HEC Montreal, CIRANO and CREF)

  • Julien Hugonnier

    (University of Lausanne, CIRANO and FAME)

  • Marcel Rindisbacher

    (Rotman School of Management, University of Toronto and CIRANO)

Abstract

The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions non-informational heterogeneity, i.e. differences in preferences and endowments, leads to non trivial trading volume in equilibrium. Our main result comes in form of a non-informational no trade theorem which provides necessary and sufficient conditions for zero trading volume in a dynamically efficient, continuous time Lucas market model with multiple goods and securities.

Suggested Citation

  • Tony Berrada & Julien Hugonnier & Marcel Rindisbacher, 2005. "Trading Volumes in Dynamically Efficient Markets," FAME Research Paper Series rp139, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp139
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    File URL: http://www.swissfinanceinstitute.ch/rp139.pdf
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    More about this item

    Keywords

    General Equilibrium; Trading Volume; heterogenous agents; multiple goods; incomplete markets; no-trade theorem.;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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