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The dynamics of partially-revealing rational expectations equilibria

Author

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  • Jayant V. Ganguli

    (University of Cambridge)

  • Scott Condie

    (Brigham Young University)

Abstract

This paper investigates the qualitative properties of a dynamic rational expectations equilibrium model where incomplete private information revelation is possible. The information revelation properties of prices are endogenous to the model. Periods of complete and incomplete information revelation are examined and it is shown that the private information of ambiguity averse investors tends to be revealed following periods of poor market performance. It is further demonstrated that the differences in long-run market prices that arise from partially- and fully-revealing equilibria are significant. These results shed some light on the market selection hypothesis under asymmetric information.

Suggested Citation

  • Jayant V. Ganguli & Scott Condie, 2009. "The dynamics of partially-revealing rational expectations equilibria," 2009 Meeting Papers 1122, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:1122
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    References listed on IDEAS

    as
    1. George J. Mailath & Alvaro Sandroni, 2003. "Market Selection and Asymmetric Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 343-368.
    2. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    3. Scott Condie & Jayant V. Ganguli, 2011. "Ambiguity and Rational Expectations Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 821-845.
    4. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
    5. Lawrence Blume & David Easley, 2006. "If You're so Smart, why Aren't You Rich? Belief Selection in Complete and Incomplete Markets," Econometrica, Econometric Society, vol. 74(4), pages 929-966, July.
    6. Podczeck, Konrad & Yannelis, Nicholas C., 2008. "Equilibrium theory with asymmetric information and with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 141(1), pages 152-183, July.
    7. Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, vol. 68(6), pages 1303-1342, November.
    8. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    9. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
    10. Scott Condie, 2008. "Living with ambiguity: prices and survival when investors have heterogeneous preferences for ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(1), pages 81-108, July.
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    Cited by:

    1. Junyong He & Helen Hui Huang & Shunming Zhang, 2020. "Ambiguity Aversion, Information Acquisition, and Market Opacity," Annals of Economics and Finance, Society for AEF, vol. 21(2), pages 263-329, November.

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