Characterizing revealing and arbitrage-free financial markets

Lionel De Boisdeffre ()
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Lionel De Boisdeffre: Centre d'Economie de la Sorbonne & CATT - Université de Pau

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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: anticipations; inferences; perfect foresight; rational expectations; financial markets; asymmetric information; arbitrage (search for similar items in EconPapers)
JEL-codes: D52 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2016-05
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:16042

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