Price revelation and existence of equilibrium in a private belief economy

Lionel de Boisdeffre ()
Additional contact information
Lionel de Boisdeffre: Université de Pau - CATT et Centre d'Economie de la Sorbonne

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: We consider a pure exchange financial economy, where rational agents, possibly asymmetrically informed, forecast prices privately and, therefore, face “exogenous uncertainty”, on the future state of nature, and “endogenous uncertainty” on future prices. At a sequential equilibrium, all agents expect the “true” price as a possible outcome and elect optimal strategies at the first period, which clear on all markets ex post. We introduce no-arbitrage prices and display their revealing properties. Under mild conditions, we show that a sequential equilibrium exists, whatever the financial structure and agents' private information or beliefs. This result suggests that existence problems of standard sequential equilibrium models, following Hart (1975) or Radner (1979), stem from the rational expectation and perfect foresight assumptions, which are both dropped in our model

Keywords: Sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage (search for similar items in EconPapers)
JEL-codes: D52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-07
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
ftp://mse.univ-paris1.fr/pub/mse/CES2014/14056.pdf (application/pdf)

Related works:
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:mse:cesdoc:14056

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().