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General Equilibrium: Arbitrage and Information

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  • Nikita Kuksin

Abstract

Adopting a non-probabilistic formulation of the Efficient Markets Hypothesis, this paper looks at its relationship to general equilibrium theory. Shannon's entropy allows us to show that arbitrage-free prices maximise the economy-wide amount of information, thereby bringing the two concepts together.

Suggested Citation

  • Nikita Kuksin, 2007. "General Equilibrium: Arbitrage and Information," CERT Discussion Papers 0701, Centre for Economic Reform and Transformation, Heriot Watt University.
    • Handle: RePEc:hwe:certdp:0701
    as

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    File URL: http://www2.hw.ac.uk/sml/downloads/cert/wpa/2007/dp0701.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Richard E. Kihlstrom & Leonard J. Mirman, 1975. "Information and Market Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 357-376, Spring.
    3. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    arbitrage; entropy; information; efficient markets;
    All these keywords.

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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