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On the existence of financial equilibrium when beliefs are private




We consider a pure exchange financial economy, where agents, possibly asymetrically informed, face an "exogenous uncertainty", on the future state of nature, and an "endogenous uncertainty", on the future price in each random state. Namely, every agent forms private price anticipations on every prospective market, distributed along an idiosyncratic probability law. At a sequential equilibrium, all agents expect the "true" price as a possible outcome and elect optimal strategies at the first period, which clear on all markets at every time period. We show that, provided the endogenous uncertainty is large enough, a sequential equilibrium exists under standard conditions for all types of financial structures and information signals across agents. This result suggests that standard existence problems of sequential equilibrium models, following Hart (1975), stem from the perfect foresight assumption

Suggested Citation

  • Lionel de Boisdeffre, 2012. "On the existence of financial equilibrium when beliefs are private," Documents de travail du Centre d'Economie de la Sorbonne 12055, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:12055

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    References listed on IDEAS

    1. Bernard Cornet & Lionel Boisdeffre, 2009. "Elimination of arbitrage states in asymmetric information models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(2), pages 287-293, February.
    2. Momi, Takeshi, 2001. "Non-existence of equilibrium in an incomplete stock market economy," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 41-70, February.
    3. Busch, Lutz-Alexander & Govindan, Srihari, 2004. "Robust nonexistence of equilibrium with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 40(6), pages 641-645, September.
    4. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
    5. Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics,in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
    6. Cornet, Bernard & De Boisdeffre, Lionel, 2002. "Arbitrage and price revelation with asymmetric information and incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 38(4), pages 393-410, December.
    7. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-1123, November.
    8. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    9. Hammond, Peter J., 1983. "Overlapping expectations and Hart's conditions for equilibrium in a securities model," Journal of Economic Theory, Elsevier, vol. 31(1), pages 170-175, October.
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    More about this item


    Sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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