Anything is possible: on the existence and uniqueness of equilibria in the Shleifer-Vishny model of limits of arbitrage

Lutz Georg Arnold ()

No 418, Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft from University of Regensburg, Department of Economics

Abstract: This paper gives a complete characterization of the equilibria in Shleifer and Vishny's (1997) model of "Limits of Arbitrage". We show that expected wealth (the arbitrageurs' objective function) is a possibly non-concave function of investment and that the relation between investment and prices is not necessarily continuous or single-valued or well-defined. As a result, "anything is possible": non-existence or multiplicity of equilibria may arise, and sunspots may govern the equilibrium selection in the latter case.

Keywords: behavioral finance; limits of arbitrage; existence of an equilibrium; sunspots; Behavioral Finance; Grenzen der Arbitrage; Existenz eines Gleichgewichts; Sonnenflecken; Anlageverhalten; Arbitrage (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2006-10-27
Note: This paper is part of http://www.opus-bayern.de/uni-regensburg/schriftenreihen_ebene2.php?sr_id=3
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Related works:
Journal Article: Anything is Possible: On the Existence and Uniqueness of Equilibria in the Shleifer-Vishny Model of Limits of Arbitrage (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:bay:rdwiwi:732

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