On statistical indistinguishability of complete and incomplete discrete time market models

Nikolai Dokuchaev ()
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Nikolai Dokuchaev: Zhejiang University/University of Illinois at Urbana-Champaign Institute

Decisions in Economics and Finance, 2023, vol. 46, issue 2, No 4, 475 pages

Abstract: Abstract The paper studies asset pricing for stochastic discrete time stock market models. The possibility of statistical evaluation of the market completeness is investigated. It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into a incomplete one. The paper investigates if market incompleteness is robust. It is found that market incompleteness is a non-robust property as well. This is demonstrated for a basic single stock stochastic market model. This implies that, for any incomplete market from a wide class of discrete time models, there exists a complete market model with arbitrarily close stock prices. This means that incomplete markets are indistinguishable from the complete markets in the terms of market statistics.

Keywords: Price statistics; Market completeness; Market incompleteness; Forecasting; C18; C52; C53; G13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10203-023-00397-y

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