Bankruptcies in Temporary Equilibrium Forward Markets With and Without Institutional Restrictions

Dale Stahl

The Review of Economic Studies, 1985, vol. 52, issue 3, 459-471

Abstract: Sufficient conditions are found for the existence of an orderly sequence of temporary equilibria in economies with incomplete forward markets without exogenous limits on short-sales. In the absence of institutionally imposed trade restrictions, equilibrium exists under the assumption of overlapping expectations. In the institutional model a clearinghouse imposes rules of trade (interpreted as margin requirements) to reduce the likelihood of bankruptcies. Under this rule, equilibrium exists without overlapping expectations, and subsequent bankruptcies are less likely.

Date: 1985
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