[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/fgv/epgewp/149.html
   My bibliography  Save this paper

Preferences, common knowledge and speculative trade

Author

Listed:
  • Dow, James
  • Werlang, Sérgio Ribeiro da Costa
  • Madrigal, Vicente
Abstract
We study the proposition that if it is common knowledge that en allocation of assets is ex-ante pareto efficient, there is no further trade generated by new information. The key to this result is that the information partitions and other characteristics of the agents must be common knowledge and that contracts, or asset markets, must be complete. It does not depend on learning, on 'lemons' problems, nor on agreement regarding beliefs and the interpretation of information. The only requirement on preferences is state-additivity; in particular, traders need not be risk-averse. We also prove the converse result that 'no-trade results' imply that traders' preferences can be represented by state-additive utility functions. We analyze why examples of other widely studied preferences (e.g., Schmeidler (1989)) allow 'speculative' trade.

Suggested Citation

  • Dow, James & Werlang, Sérgio Ribeiro da Costa & Madrigal, Vicente, 1990. "Preferences, common knowledge and speculative trade," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 149, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:149
    as

    Download full text from publisher

    File URL: https://repositorio.fgv.br/bitstreams/adb2aadb-30b4-48d6-bc74-e5c3cde8e31e/download
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zimper, Alexander, 2014. "On the impossibility of insider trade in rational expectations equilibria," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 109-118.
    2. Zimper, Alexander, 2009. "Half empty, half full and why we can agree to disagree forever," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 283-299, August.
    3. Alexander Zimper & Wei Ma, 2017. "Bayesian learning with multiple priors and nonvanishing ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(3), pages 409-447, October.
    4. Felipe Zurita, 2004. "Essays on Speculation," Levine's Working Paper Archive 618897000000000849, David K. Levine.
    5. Gilboa, Itzhak & Samuelson, Larry & Schmeidler, David, 2022. "Learning (to disagree?) in large worlds," Journal of Economic Theory, Elsevier, vol. 199(C).
    6. Gizatulina, Alia & Hellman, Ziv, 2019. "No trade and yes trade theorems for heterogeneous priors," Journal of Economic Theory, Elsevier, vol. 182(C), pages 161-184.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fgv:epgewp:149. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Núcleo de Computação da FGV EPGE (email available below). General contact details of provider: https://edirc.repec.org/data/epgvfbr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.