Asset Markets and Investment Decisions

Anja De Waegenaere (), H. Polemarchakis and Luigi Ventura
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H. Polemarchakis: Brown University, USA

International Economic Review, 2002, vol. 43, issue 3, 857-873

Abstract: In an incomplete asset market, firms assign values to investment plans by projecting their payoffs on the span of the payoffs of marketed assets. This is a criterion that does not require firms to possess information, such as the marginal valuation of revenue across date-events by shareholders, which is not directly observable; rather, it is based on the prices and payoffs of marketed assets. Under standard assumptions, competitive equilibria exist. However, even in the absence of nominal assets, competitive equilibrium allocations are generically indeterminate. The set of competitive equilibria is indexed by the price level at each state of the world, which has implications for the effectiveness of monetary policy. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Date: 2002
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Working Paper: Asset Markets and Investment Decisions (1997)
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