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The Structure of Equilibrium in an Asset Market with Variable Supply

Manfred Nermuth ()

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We characterize the structure of Nash equilibria in asset market games with variable asset supply. In equilibrium, di®erent assets have dif- ferent returns, and (risk neutral) investors with di®erent wealth hold portfolios with di®erent structures. In equilibrium, an asset's return is inversely related to the elasticity of its supply. The larger an in- vestor, the more diversi¯ed is his portfolio. Smaller investors do not hold all the assets, but achieve higher percentage returns. More gen- erally, our results can be applied also to other \multi-market games" in which several players compete in several arenas simultaneously, like multi-market Cournot oligopolies, or multiple rent-seeking games.

JEL-codes: C72 D43 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2008-06
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