Characterizing revealing and arbitrage-free financial markets

Lionel de Boisdeffre ()
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Lionel de Boisdeffre: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour

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Abstract: Radner (1979) introduces a general equilibrium model of asymmetric information, where agents have a model "of how equilibrum prices are determined", without which they could not update their beliefs. Diferently, De Boisdeffre (2016, [3]) shows that agents, having private anticipations and no price model, can still update their beliefs from observing trade on financial markets, until all arbitrage is precluded. Then, inferences consist in successively eliminating anticipations, which would grant an unlimited arbitrage, if realizable. Thus, in our model, agents learn from arbitrage opportunities on portfolios, as they would do on actual markets. this model is consistent with all kinds of assets and uncountably many forecasts. We now characterize arbitrage-free markets, and show that the information markets may reveal depends on the span of asset payoffs in agents' commonly expected states. We provide conditions, under which markets are non-informative or typically revealing.

Keywords: perfect foresight; rational expectations; financial markets; asymmetric information; anticipations; inférences; anticipations parfaites; anticipations rationnelles; marchés financiers; information asymétrique; arbitrage (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-sog
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Published in 2016

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