Precautionary Savings in Incomplete Financial Markets

R. Kast and André Lapied ()

G.R.E.Q.A.M. from Universite Aix-Marseille III

Abstract: Comparative statics in an Arrow-Radner incomplete market equilibrium model shows that some insights on agents' risk perception can be inferred from market prices. We call "precautionary savings" those savings which are invested in some riskless asset. The results are: precautionary savings increase when non insurable risks increase and decrease when indurable risks increase; in the first case the compunded price of an asset which doesn't hedge this risk decreases, the compounded price of an asset hedging this risk increases in the second case. These results hold even though markets are incomplete and information structures are assymetric.

Keywords: GENERAL EQUILIBRIUM; UNCERTAINTY; FINANCIAL MARKET (search for similar items in EconPapers)
JEL-codes: D52 D81 D82 G12 (search for similar items in EconPapers)
Pages: 11 pages
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:fth:aixmeq:99a14

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