Stability under learning of equilibria in financial markets with supply information

Maik Heinemann ()
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Maik Heinemann: University of Lüneburg

Economics Bulletin, 2010, vol. 30, issue 1, 383-391

Abstract: In a recent paper Ganguli/Yang (2009) demonstrate, that there can exist multiple equilibria in a financial market model a' la Grossman/Stiglitz (1980) if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important respects from the usual equilibrium of the Grossman-Stiglitz type which still exists in this model. This note shows that these additional equilibria are always unstable under eductive learning (cf. Guesnerie (2002)) and adaptive learning via least-squares estimation (cf. Marcet/Sargent (1988) or Evans/Honkapohja (2001)). Regarding the original Grossman-Stiglitz type equilibrium, the stability results are less clear cut, since this equilibrium might be unstable under eductive learning while it is always stable under adaptive learning.

Keywords: Recursive Least Squares Learning; Eductive Stability; Rational Expectations; Private Information (search for similar items in EconPapers)
JEL-codes: C6 D8 (search for similar items in EconPapers)
Date: 2010-01-28
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Citations: View citations in EconPapers (4)

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