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Asset market equilibrium with short-selling and differential information

Abstract

We introduce differential information in the asset market model studied by Cheng J Math Econ 20(1):137–152,1991, Dana and Le Van J Math Econ 25(3):263–280,1996 and Le Van and Truong Xuan J Math Econ 36(3): 241–254, 2001. We prove an equilibrium existence result assuming that the economy’s information structure satisfies the conditional independence property. If private information is not publicly verifiable, agents have incentives to misreport their types and therefore contracts may not be executed in the second period. We also show that under the conditional independence property equilibrium contracts are always executable.

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Correspondence to Wassim Daher.

Additional information

We are grateful to Françoise Forges, Nicholas Yannelis, an anonymous referee and especially an Associate Editor for valuable comments and suggestions. Thanks are also due to Rose-Anne Dana, Cuong Le Van, M. Ali Khan, Paulo K. Monteiro and Frank Riedel. An earlier version of the paper has been presented in the first General Equilibrium workshop in Rio, as well as in the MED seminar in Paris-1. We thank the participants for their valuable comments. Part of this work was undertaken while the authors visited Faculdade de Economia da Universidade Nova de Lisboa in April 2006. Yiannis Vailakis acknowledges the financial support of a Marie Curie fellowship, (FP6 Intra-European Marie Curie fellowships 2004-2006).

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Daher, W., Martins-da-Rocha, V.F. & Vailakis, Y. Asset market equilibrium with short-selling and differential information. Economic Theory 32, 425–446 (2007). https://doi.org/10.1007/s00199-006-0131-5

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  • DOI: https://doi.org/10.1007/s00199-006-0131-5

Keywords

  • Asset market
  • Differential information
  • Competitive equilibrium

JEL Classification Numbers

  • C61
  • C62
  • D51