The no-arbitrage condition and financial markets with heterogeneous information

Kavous Ardalan and Kevin Hebner

Journal of Economics and Finance, 1998, vol. 22, issue 1, 87-99

Abstract: This paper examines the role of the no-arbitrage condition in financial markets with heterogeneous expectations. We consider a single-period, state-contingent claims model, withM risky securities andS states. There exist two types of heterogeneously informed investors, where the information heterogeneity is defined with respect to either the security payoff matrix, the state probability vector, or state partitions. When the information heterogeneity is defined with respect to either the security payoff matrix or state partitions, the no-arbitrage condition imposes a constraint on the dispersion of information between informed and uninformed investors. Further, the no-arbitrage condition is useful in ascertaining the patterns of heterogeneity among investors that are consistent with equilibrium. However, when the information heterogeneity is defined with respect to state probabilities, the role of the no-arbitrage condition is severely restricted. Finally, the no-arbitrage condition may have important implications for the (necessary and sufficient) conditions for the existence of an equilibrium price vector in financial markets with heterogeneous expectations. Copyright Springer 1998

Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/BF02823235 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecfin:v:22:y:1998:i:1:p:87-99

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/BF02823235

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().