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Risky Arbitage, Asset Prices, and Externalities

  • Cuong Le Van


    (CNRS, CERMSEM, University of Paris 1)

  • Frank H. Page, Jr.


    (Department of Finance, University of Alabama)

  • Myrna Wooders


    (Department of Economics, Vanderbilt University)

We introduce a no-risky-arbitrage price (NRAP) condition for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that the NRAP condition is sufficient for the existence of competitive equilibrium in the presence of externalities. Moreover, we show that if all risky arbitrages are utility increasing, then the NRAP condition characterizes competitive equilibrium in the presence of externalities.

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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0524.

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Date of creation: Sep 2005
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Handle: RePEc:van:wpaper:0524
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  1. Monique Florenzano, 2008. "General equilibrium," Documents de travail du Centre d'Economie de la Sorbonne b08005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Bonnisseau, Jean-Marc & Medecin, Jean-Philippe, 2001. "Existence of marginal pricing equilibria in economies with externalities and non-convexities," Journal of Mathematical Economics, Elsevier, vol. 36(4), pages 271-294, December.
  3. PageJr., Frank H. & Wooders, Myrna H. & Monteiro, Paulo K., 2000. "Inconsequential arbitrage," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 439-469, December.
  4. Le Van, C. & Page, F.H.Jr. & Wooders, M., 2001. "Arbitrage and Equilibrium in Economies with Externalities," The Warwick Economics Research Paper Series (TWERPS) 588, University of Warwick, Department of Economics.
  5. Page, Frank Jr., 1987. "On equilibrium in Hart's securities exchange model," Journal of Economic Theory, Elsevier, vol. 41(2), pages 392-404, April.
  6. 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.
  7. Lars Tyge Nielsen, 1989. "Asset Market Equilibrium with Short-Selling," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 467-473.
  8. Dana, R.-A. & Le Van, C. & Magnien, F., 1999. "On the Different Notions of Arbitrage and Existence of Equilibrium," Papiers d'Economie Mathématique et Applications 1999.34, Université Panthéon-Sorbonne (Paris 1).
  9. Donald J. Brown & Jan Werner, 1995. "Arbitrage and Existence of Equilibrium in Infinite Asset Markets," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 101-114.
  10. Allouch, Nizar, 2002. "An equilibrium existence result with short selling," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 81-94, April.
  11. Bonnisseau, J.M., 1995. "Existence of Equilibria in Economies with Externalities and Non Convexities," Papiers d'Economie Mathématique et Applications 95.45, Université Panthéon-Sorbonne (Paris 1).
  12. BONNISSEAU, Jean-Marc & CORNET, Bernard, . "Existence of marginal cost pricing equilibria in economies with several nonconvex firms," CORE Discussion Papers RP 941, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-23, November.
  14. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
  15. repec:dau:papers:123456789/6228 is not listed on IDEAS
  16. 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.
  17. Page, Frank Jr., 1996. "Arbitrage and asset prices," Mathematical Social Sciences, Elsevier, vol. 31(3), pages 183-208, June.
  18. Werner, Jan, 1987. "Arbitrage and the Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 55(6), pages 1403-18, November.
  19. Hart, Oliver D., 1974. "On the existence of equilibrium in a securities model," Journal of Economic Theory, Elsevier, vol. 9(3), pages 293-311, November.
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