Competitive rational expectations equilibria without apology

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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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
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

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