Stability under Learning of Equilibria in Financial Markets with Supply Information

Maik Heinemann ()
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Maik Heinemann: Institute of Economics, University of Lüneburg

No 122, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: In a recent paper Ganguli and Yang [2009] demonstrate, that there can exist multiple equilibria in a financial market model á la Grossman and Stiglitz [1980] if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important respects from the usual equilibrium of the Grossman–Stiglitz type which still exists in this model. This note shows that these additional equilibria are always unstable under learning. This is true for both eductive learning following Guesnerie [2002] and adaptive learning via least–squares estimation (cf. Marcet and Sargent [1988] or Evans and Honkapohja [2001]). Regarding the original Grossman–Stiglitz type equilibrium, the stability results are less clear cut, since this equilibrium might be unstable under eductive learning while it is always stable under adaptive learning.

Keywords: Recursive Least Squares Learning; Eductive Stability; Rational Expectations; Private Information (search for similar items in EconPapers)
JEL-codes: C62 D82 D83 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2009-03
New Economics Papers: this item is included in nep-cta and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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