Private information and sunspots in sequential asset markets

Jess Benhabib and Pengfei Wang

Journal of Economic Theory, 2015, vol. 158, issue PB, 558-584

Abstract: We study a model where some agents have private information about risky asset returns and trade to obtain capital gains, while others acquire the risky asset and hold it to maturity, forming expectations of returns based on market prices. We show that under such a structure, in addition to fully revealing rational expectations equilibria, there exists a continuum of equilibrium prices consistent with rational expectations, where the asset prices are subject to sunspot shocks. Such sunspot shocks can generate persistent fluctuations in asset prices that look like a random walk in an efficient market.

Keywords: The Grossman–Stiglitz paradox; Sunspots (search for similar items in EconPapers)
JEL-codes: D82 D83 G12 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S002205311400180X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Private Information and Sunspots in Sequential Asset Markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:158:y:2015:i:pb:p:558-584

DOI: 10.1016/j.jet.2014.12.003

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().