Characterizing Revealing and Arbitrage-Free Financial Markets

Lionel De Boisdeffre (1)

1 CATT - Centre d'Analyse Théorique et de Traitement des données économiques

Radner (Econometrica 47: 655-678, 1979) introduces a general equilibrium model of asymmetric information where "agents have a 'model' or 'expectations' of how equilibrium prices are determined". They would only infer private information of other agents from comparing actual prices and price forecasts with their theoretical values at a price revealing equilibrium. De Boisde¤re (Economic Theory Bulletin 4(1), 2016) shows that agents having private anticipations and no price model may still update their beliefs from observing trade on financial markets, until all arbitrage is precluded. The informational refinement consists in successively eliminating anticipations, which would grant an unlimited arbitrage, if realizable. Thus, agents simply observe, respond and learn from arbitrage opportunities on portfolios, as they would do on actual markets. This model is consistent with all kinds of assets and uncountably many forecasts. We now study markets, which preclude arbitrage, and show the information markets may convey depends on the span of asset payo¤s in agents' commonly expected states. We provide conditions, under which markets are non informative, or, typically, partially or fully revealing.

Mots clés: anticipations; inferences; perfect foresight; rational expectations; financial markets; asymmetric information; arbitrage

Domaines: Economies et finances; Économie et finance quantitative [q-fin]

Lionel De Boisdeffre. Characterizing Revealing and Arbitrage-Free Financial Markets. 2016. ⟨hal-02938862⟩