Existence of an Optimal Portfolio for Every Investor in an Arrow-Debreu Economy
نویسنده
چکیده
In this paper we discuss the existence of an optimal portfolio for every investor in a two-period Arrow-Debreu economy in which risky assets are contingent claims on aggregate consumption. Since we derive an optimal portfolio for every investor, the pricing kernel is endogenously determined. Hence the sufficient conditions for the existence of optimal portfolios given in this paper do not involve the pricing kernel; instead they are directly on investors preferences and beliefs. We also present a new approach to the equilibrium, which works with the space of investors Þrst-period consumption. The case where investors have background risk is also discussed.
منابع مشابه
Equilibrium portfolios with heterogeneous consumption externalities
The present paper extends the Arrow-Debreu portfolio model to consumption externalities. It is assumed that each investor has a von NeumannMorgenstern utility that is a function of her own consumption and of the average consumption in the group to which she belongs. Individual degrees of risk aversion and conformism are heterogeneous within each group and between the different groups in the eco...
متن کاملDoes the More Risk-averse Investor hold a Less Risky Portfolio?∗
We study the suitability of using absolute risk aversion as a measure of willingness to take risk in the Arrow-Debreu portfolio framework. A global measure of risk for Arrow-Debreu portfolios is introduced. This measure is termed ‘conservatism’. We show that the concept of ‘more conservative’ is stronger than that of ‘more risk-averse’. A higher absolute risk aversion is only necessary but not ...
متن کاملOn optimal portfolio trading strategies for an investor facing transactions costs in a continuous trading market
Modern asset pricing theory generally assumes frictionless trading. Under this assumption, an investor would revise his portfolio holdings at every date on which he could trade. However, in models where an investor faces financial market frictions such as transactions costs, the portfolio is optimally rebalanced less frequently. This paper examines the portfolio trading problem for an investor ...
متن کاملImperfect Information Leads to Complete Markets If Dividends Are Diffusions
A pure exchange economy with a financial market is studied where aggregate dividends aremodeled as a diffusion. The dynamics of the diffusion are allowed to depend on factors which are unobservable to the agents and have to be estimated. With perfect information, the asset market would be incomplete because there are more factors than traded assets. Imperfect information reduces the number of o...
متن کاملExistence of Equilibria in Financial Markets With Restricted Participation
Investors facing restrictions on the portfolios that they can trade, is more of a norm than an exception. We consider a model in which investors’ portfolio sets are constrained. As in Balasko, Cass and Siconolfi (1990) these constraints are exogenously given (possibly arising due to some institutional reasons). Moreover, we consider very general restrictions on portfolio sets as in Siconolfi (1...
متن کامل