Belief non-equivalence and financial trade: a comment on a result by Araujo and Sandroni
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 poster...
- Autores:
-
Carvajal Escobar, Andrés Mauricio
Riascos Villegas, Alvaro José
- Tipo de recurso:
- Work document
- Fecha de publicación:
- 2006
- Institución:
- Universidad de los Andes
- Repositorio:
- Séneca: repositorio Uniandes
- Idioma:
- eng
- OAI Identifier:
- oai:repositorio.uniandes.edu.co:1992/8004
- Acceso en línea:
- http://hdl.handle.net/1992/8004
- Palabra clave:
- General equilibrium
Heterogeneous beliefs
Existence
Equilibrio (Economía) - Investigaciones - Modelos matemáticos
Incertidumbre (Economía) - Investigaciones - Modelos matemáticos
Mercado financiero - Investigaciones - Modelos econométricos
Macroeconomía - Investigaciones
D52, G1
- Rights
- openAccess
- License
- http://creativecommons.org/licenses/by-nc-nd/4.0/
| Summary: | 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. |
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