Noisy Arrow - Debreu Equilibria ∗
نویسنده
چکیده
I develop a noisy rational expectations equilibrium model with a continuum of states and a full set of options that render the market complete. I show a major difference in equilibrium behavior between models with constant absolute risk aversion (CARA) and non-CARA preferences. First, when informed traders have non-CARA preferences, all equilibria are fully revealing, independent of the amount of noise in the supply. Second, when informed traders have CARA preferences, but uninformed traders have non-CARA preferences, the set of equilibria contains a fully revealing equilibrium and a minimally revealing equilibrium. The latter reveals the minimal possible amount of information and is highly inefficient: In this equilibrium, Arrow-Debreu state prices are not sufficient to recover the information contained in the noisy aggregate demand and supply. My results have important implications for price discovery through options. JEL Classification: G14, G13, D82
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