Financial Market Equilibria With Cumulative Prospect Therory

Enrico De Giorgi (), Thorsten Hens and Marc Oliver Rieger
Additional contact information
Thorsten Hens: University of Zurich
Marc Oliver Rieger: University of Zurich

No 07-21, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. The reason is an infinite short-selling problem. But even when a short-sell constraint is added, non-existence can occur due to discontinuities in agents demand functions. Existence of equilibria is established when short-sales constraints are imposed and there is also a continuum of agents in the market.

Keywords: Cumulative prospect theory; general equilibrium model; non-convex preferences; continuum of agents (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-05, Revised 2007-08
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Financial market equilibria with cumulative prospect theory (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0721

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