IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/770r.html
   My bibliography  Save this paper

Real Indeterminacy with Financial Assets

Author

Listed:

Abstract

The purpose of this paper, which takes up after D. Cass (1984a, 1984b) is to find the degree of real indeterminacy inherent in models with purely financial assets. We solve the problem for the case where there are enough traders (precisely, the number of traders is larger than the number of bonds) and the asset returns structure is in general position. We find that if the number of bonds is non-zero and fewer than the number of states then, generically, the number of dimensions of real indeterminacy is S-1, one less than the number of states. There is something of a surprise in the above result, namely the dimension of real indeterminacy does not depend on the number of bonds (except in the two limit cases). Indeed one initial conjecture was S-B. This points to an intriguing qualitative discontinuity at the complete market configuration. If markets are financially complete then the model is determinate. Let just one bond be missing and the model become highly indeterminate. Thus, in this sense, the complete markets hypothesis lacks robustness.

Suggested Citation

  • John Geanakoplos & Andreu Mas-Colell, 1985. "Real Indeterminacy with Financial Assets," Cowles Foundation Discussion Papers 770R, Cowles Foundation for Research in Economics, Yale University, revised Oct 1985.
    • Handle: RePEc:cwl:cwldpp:770r
    Note: CFP 721.
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d07/d0770-r.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
    2. Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
    3. Cass, David, 2006. "Competitive equilibrium with incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 384-405, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aouani, Zaier & Cornet, Bernard, 2009. "Existence of financial equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 772-786, December.
    2. Aouani, Zaier & Cornet, Bernard, 2011. "Reduced equivalent form of a financial structure," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 318-327.
    3. John Geanakoplos & Heracles M. Polemarchakis, 1985. "Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete," Cowles Foundation Discussion Papers 764, Cowles Foundation for Research in Economics, Yale University.
    4. Bernard Cornet & Ramu Gopalan, 2010. "Arbitrage and equilibrium with portfolio constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 227-252, October.
    5. Philippe Bich & Bernard Cornet, 2009. "Existence of pseudo-equilibria in a financial economy," Post-Print halshs-00426399, HAL.
    6. Zame, William R, 1993. "Efficiency and the Role of Default When Security Markets Are Incomplete," American Economic Review, American Economic Association, vol. 83(5), pages 1142-1164, December.
    7. Ma, Wei, 2015. "A simple method for computing equilibria when asset markets are incomplete," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 32-38.
    8. Wei Ma, 2014. "A Simple Method for Computing Equilibria when Asset Markets Are Incomplete," Working Papers 201478, University of Pretoria, Department of Economics.
    9. John Geanakoplos & Martin Shubik, 1989. "The Capital Asset Pricing Model as a General Equilibrium with Incomplete Markets," Cowles Foundation Discussion Papers 913, Cowles Foundation for Research in Economics, Yale University.
    10. A. Jofré & R. T. Rockafellar & R. J-B. Wets, 2017. "General economic equilibrium with financial markets and retainability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(1), pages 309-345, January.
    11. Mas-Colell, Andreu & Zame, William R., 1996. "The existence of security market equilibrium with a non-atomic state space," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 63-84.
    12. Herings, P. J. J. & Polemarchakis, H., 2002. "Equilibrium and arbitrage in incomplete asset markets with fixed prices," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 133-155, April.
    13. Levine, David K., 1989. "Infinite horizon equilibrium with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 18(4), pages 357-376, September.
    14. Charalambos Aliprantis & Rabee Tourky, 2009. "Equilibria in incomplete assets economies with infinite dimensional spot markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(2), pages 221-262, February.
    15. Orrillo, Jaime, 2001. "Default and exogenous collateral in incomplete markets with a continuum of states," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 151-165, February.
    16. Laura Angeloni & Bernard Cornet, 2005. "Existence Of Financial Equilibria In A Multiperiod Stochastic Economy," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200506, University of Kansas, Department of Economics, revised Feb 2005.
    17. Lionel de Boisdeffre, 2021. "Dropping the Cass Trick and Extending Cass' Theorem to Asymmetric Information and Restricted Participation," Post-Print halshs-03196923, HAL.
    18. Cea-Echenique, Sebastián & Torres-Martínez, Juan Pablo, 2016. "Credit segmentation in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 62(C), pages 19-27.
    19. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    20. Bai, Jinhui H. & Schwarz, Ingolf, 2006. "Monetary equilibria in a cash-in-advance economy with incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 422-451, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:770r. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.