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Anything is Possible: On the Existence and Uniqueness of Equilibria in the Shleifer-Vishny Model of Limits of Arbitrage

Lutz Georg Arnold ()

No 418, University of Regensburg Working Papers in Business, Economics and Management Information Systems 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. Es wird eine vollständige Charakterisierung möglicher Gleichgewichte im Shleifer-Vishny-Modell zu Grenzen der Arbitrage vorgenommen. Zunächst wird gezeigt, dass die Zielfunktion der Arbitrageure - ihr erwartetes Vermögen - eine nicht-konkave Funktion ihrer Investitionen ist und dass die Abbildung, die die aggregierten Investitionen und die Vermögenspreise in Beziehung zueinander setzt, möglicherweise unstetig, mehrwertig oder gar nicht wohldefiniert ist. Als Konsequenz hieraus "ist alles möglich": Nicht-Existenz eines Gleichgewichts ebenso wie Multiplizität. Im zweiten Fall können Sonnenflecken die Gleichgewichtsauswahl bestimmen.

Keywords: Anlageverhalten; Arbitrage; Behavioral Finance; Grenzen der Arbitrage; Existenz eines Gleichgewichts; Sonnenflecken; behavioral finance; limits of arbitrage; existence of an equilibrium; sunspots (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2006
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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 (2009) Downloads
Working Paper: Anything is Possible: On the Existence and Uniqueness of Equilibria in the Shleifer-Vishny Model of Limits of Arbitrage (2009) Downloads
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