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General equilibrium with heterogeneous participants and continuous consumption with information costs and short selling constraints

Author

Listed:
  • Mondher Bellalah

    (Cy Cergy Paris University
    ISC Paris Business School)

  • Xu Guo

    (Shandong University)

  • Shuo Wu

    (Shandong University)

  • Detao Zhang

    (Shandong University)

Abstract

The paper studies the term structure of interest rates imposed by equilibrium in a production economy consisting of participants with heterogeneous preferences with information costs and short selling constraints. Our model accounts explicitly and simultaneously for information costs and short sales in the pricing of assets in the economy. Consumption is continuous. The paper contains an exact solution to market equilibrium. It provides an explicit constructive solution for determining the state-price density process. Interest rates and their behaviors are a function of economic variables with information costs and short selling constraints.

Suggested Citation

  • Mondher Bellalah & Xu Guo & Shuo Wu & Detao Zhang, 2022. "General equilibrium with heterogeneous participants and continuous consumption with information costs and short selling constraints," Annals of Operations Research, Springer, vol. 313(2), pages 713-732, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-020-03663-z
    DOI: 10.1007/s10479-020-03663-z
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    References listed on IDEAS

    as
    1. Mondher Bellalah, 1999. "Valuation of futures and commodity options with information costs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(6), pages 645-664, September.
    2. Bellalah, Mondher & Bradford, Marc & Zhang, Detao, 2016. "A general theory of corporate international investment under incomplete information, short sales and taxes," Economic Modelling, Elsevier, vol. 58(C), pages 615-626.
    3. Vasicek, Oldrich Alfons, 2005. "The economics of interest rates," Journal of Financial Economics, Elsevier, vol. 76(2), pages 293-307, May.
    4. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    5. Mondher Bellalah & Detao Zhang, 2019. "An intertemporal capital asset pricing model under incomplete information and short sales," Annals of Operations Research, Springer, vol. 281(1), pages 143-159, October.
    6. Vasicek, Oldrich Alfons, 2013. "General equilibrium with heterogeneous participants and discrete consumption times," Journal of Financial Economics, Elsevier, vol. 108(3), pages 608-614.
    7. Mondher Bellalah & Yaosheng Xu & Detao Zhang, 2019. "Intertemporal optimal portfolio choice based on labor income within shadow costs of incomplete information and short sales," Annals of Operations Research, Springer, vol. 281(1), pages 397-422, October.
    8. Bellalah, Mondher & Zhang, Detao, 2017. "A model for international capital markets closure in an economy with incomplete markets and short sales," Economic Modelling, Elsevier, vol. 67(C), pages 316-324.
    9. Mondher Bellalah & Zhen Wu, 2002. "A Model For Market Closure And International Portfolio Management Within Incomplete Information," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(05), pages 479-495.
    10. Wu, Chunchi & Li, Qiang & Weii, K C John, 1996. "Incomplete-Information Capital Market Equilibrium with Heterogeneous Expectations and Short Sale Restrictions," Review of Quantitative Finance and Accounting, Springer, vol. 7(2), pages 119-136, September.
    11. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    General equilibrium; Continuous production and consumption; Information costs; Short selling;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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