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Characterizing revealing and arbitrage-free financial markets

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  • Lionel De Boisdeffre

    (Centre d'Economie de la Sorbonne & CATT - Université de Pau)

Abstract

Radner (1979) introduces a general equilibrium model of asymmetric information, where agents have a model "of how equilibrum prices are determined", without which they could not update their beliefs. Diferently, De Boisdeffre (2016, [3]) shows that agents, having private anticipations and no price model, can still update their beliefs from observing trade on financial markets, until all arbitrage is precluded. Then, inferences consist in successively eliminating anticipations, which would grant an unlimited arbitrage, if realizable. Thus, in our model, agents learn from arbitrage opportunities on portfolios, as they would do on actual markets. this model is consistent with all kinds of assets and uncountably many forecasts. We now characterize arbitrage-free markets, and show that the information markets may reveal depends on the span of asset payoffs in agents' commonly expected states. We provide conditions, under which markets are non-informative or typically revealing

Suggested Citation

  • Lionel De Boisdeffre, 2016. "Characterizing revealing and arbitrage-free financial markets," Documents de travail du Centre d'Economie de la Sorbonne 16042, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:16042
    as

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2016/16042.pdf
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    References listed on IDEAS

    as
    1. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    2. Cornet, Bernard & De Boisdeffre, Lionel, 2002. "Arbitrage and price revelation with asymmetric information and incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 38(4), pages 393-410, December.
    3. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    anticipations; inferences; perfect foresight; rational expectations; financial markets; asymmetric information; arbitrage;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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