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Endogenous Participation Risk in Speculative Markets

Listed author(s):
  • Edouard Challe

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

This paper analyses the dynamic implications of an asset-pricing model with incomplete participation due to entry costs. It is shown that heterogeneity in entry costs can lead to the existence of multiple stochastic sunspot equilibria, whereby the number of agents in the market and asset prices fluctuate endogeneously over time in the absence of fundamental uncertainty. Such asset-price fluctuations occur despite the uniqueness of the deterministic equilibrium, and thus bear no link to the usual notion of steady-state indeterminacy. In addition to excess volatility, the equilibria exhibit predictable and conditionally heteroskedastic returns.

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Paper provided by HAL in its series Post-Print with number halshs-00170887.

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Date of creation: 2007
Publication status: Published in Cahier de recheche du CEREG. 2007
Handle: RePEc:hal:journl:halshs-00170887
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00170887
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  23. repec:dau:papers:123456789/2739 is not listed on IDEAS
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