Kovalenkov, A. and Vives, X. (2014) Competitive rational expectations equilibria without apology. Journal of Economic Theory, 149(1), pp. 211-235. (doi: 10.1016/j.jet.2013.05.002)
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Abstract
Consider a financial market with N risk-averse asymmetrically informed traders. When N grows at the same rate as noise trading, prices in competitive and in strategic rational expectations equilibrium converge to each other at a rate of 1/N. Equilibria in the two scenarios are close when noise trading volume per informed trader is large in relation to risk-bearing capacity. Both equilibria converge to the competitive equilibrium of a limit continuum economy as the market becomes large at a slower rate of . The results extend to endogenous information acquisition and the connections with the Grossman–Stiglitz paradox are highlighted.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Kovalenkov, Dr Alexander |
| Authors: | Kovalenkov, A., and Vives, X. |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Journal of Economic Theory |
| Publisher: | Elsevier |
| ISSN: | 0022-0531 |
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