Chapter

No‐Trade Theorems, Competitive Asset Pricing, and Bubbles

Markus K. Brunnermeier

in Asset Pricing under Asymmetric Information

Published in print January 2001 | ISBN: 9780198296980
Published online November 2003 | e-ISBN: 9780191596025 | DOI: http://dx.doi.org/10.1093/0198296983.003.0002
No‐Trade Theorems, Competitive Asset Pricing, and Bubbles

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Ch. 2 first exposes the reader to a more tractable notion of common knowledge and the intuition behind proofs of the different no‐trade theorems. The no‐trade theorems state the specific conditions under which differences in information alone do not lead to trade. The next section sketches out a brief introduction of the basics of asset pricing under symmetric information and highlights the complications that can arise under asymmetric information. Information revelation by prices is closely linked to the security structure and market completeness. The chapter also provides definitions of bubbles and investigates the existence of bubbles under common knowledge. It then illustrates the importance of higher‐order uncertainty for the possible existence of bubbles.

Keywords: asset pricing; asymmetric information; bubbles; common knowledge; higher‐order uncertainty; market completeness; no‐trade theorems; symmetric information

Chapter.  13009 words.  Illustrated.

Subjects: Financial Markets

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