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Endogenous noise trackers in a Radner equilibrium

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  • Jin Hyuk Choi
  • Kim Weston

Abstract

We prove the existence of an incomplete Radner equilibrium in a model with exponential investors and an endogenous noise tracker. We analyze a coupled system of ODEs and reduce it to a system of two coupled ODEs in order to establish equilibrium existence. As an application, we study the impact of the endogenous noise tracker on welfare by comparing to a model with an exogenous noise trader. We show that the aggregate welfare in the endogenous noise tracker model is bigger for a sufficiently large stock supply, but the welfare comparison depends in a non-trivial manner on the other model parameters.

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  • Jin Hyuk Choi & Kim Weston, 2021. "Endogenous noise trackers in a Radner equilibrium," Papers 2108.00973, arXiv.org, revised Jun 2022.
    • Handle: RePEc:arx:papers:2108.00973
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    References listed on IDEAS

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    Cited by:

    1. Kim Weston, 2022. "Existence of an equilibrium with limited participation," Papers 2206.12399, arXiv.org.

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