No-Arbitrage, State Prices and Trade in Thin Financial Markets
نویسندگان
چکیده
We examine how non-competitiveness in financial markets affects the choice of asset portfolios and the determination of equilibrium prices. We apply a model of economic equilibrium, based on [12], in which individual traders recognize and estimate the impact of their trades on financial prices, and in which these effects are determined endogenously as part of the equilibrium concept. For the case in which markets allow for perfect insurance, we argue that the principle of no-arbitrage asset pricing is consistent with non-competitive behavior and extend the fundamental theorem of asset pricing to the non-competitive setting.
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