BELIEF NON-EQUIVALENCE AND FINANCIAL TRADE: A COMMENT ON A RESULT BY ARAUJO AND SANDRONI

Andrés Carvajal and Alvaro Riascos ()

No 2062, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: Aloisio Araujo and Alvaro Sandroni have shown in [1] that in a complete-markets economy in which there are no exogenous bounds to financial trade, existence of equilibrium requires agents with prior beliefs that agree on zero-probability events, and, therefore, with asymptotically homogeneous posteriors. This note illustrates the extent to which the result depends on market completeness: in general, equilibrium requires compatibility of beliefs only up to the revenue transfer opportunities allowed by the market; when the market is sufficiently incomplete, generically on the space of asset returns, even individuals who disagree on zero-probability events meet that constrained-compatibility" requirement."

Keywords: General equilibrium; heterogeneous beliefs; existence (search for similar items in EconPapers)
JEL-codes: D52 G1 (search for similar items in EconPapers)
Pages: 21
Date: 2006-07-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:002062

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