Asset Market Equilibrium with Short-Selling and Differential Information

31 Pages Posted: 27 Dec 2005 Last revised: 27 Nov 2011

See all articles by Wassim Daher

Wassim Daher

Gulf University for Science and Technology (GUST)

V. Filipe Martins-da-Rocha

Ceremade, Université Paris-Dauphine

Ioannis Vailakis

Université Paris I Panthéon-Sorbonne - CERMSEM

Date Written: December 23, 2005

Abstract

We introduce differential information in the asset market model studied by Cheng (1991), Dana and Le Van and Le Van and Truong Xuan (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 may not have incentives to reveal truthfully their information, and therefore contracts may not be executed. We show that conditional independence is crucial to address the issue of execution of contracts, since it ensures that, at equilibrium, contracts are incentive compatible.

Keywords: Asset Market, Differential Information, Conditional Independence, Competitive Equilibrium, Incentive Compatibility

JEL Classification: C61, C62, D51

Suggested Citation

Daher, Wassim and Martins-da-Rocha, V. Filipe and Vailakis, Ioannis, Asset Market Equilibrium with Short-Selling and Differential Information (December 23, 2005). Economic Theory, Vol. 32, 2007, Available at SSRN: https://ssrn.com/abstract=871749

Wassim Daher (Contact Author)

Gulf University for Science and Technology (GUST) ( email )

Department of Mathematics and Natural Sciences
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Mishref, Mubarak Al-Abdullah Al-Jaber Area (West Mishref)
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V. Filipe Martins-da-Rocha

Ceremade, Université Paris-Dauphine ( email )

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Paris Cedex 16, 75775
France
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Ioannis Vailakis

Université Paris I Panthéon-Sorbonne - CERMSEM ( email )

106-112, Boulevard de l'Hôpital
Paris, 75647
France

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