TY - JOUR
T1 - Learning, Rare Events, and Recurrent Market Crashes in Frictionless Economies without Intrinsic Uncertainty
AU - Sandroni, Alvaro
N1 - Funding Information:
I thank Stephen Morris and participants of the SITE Summer Workshop, Econometric Society Winter Meetings, University of Iowa Workshop, and NBER Macroeconomic Fluctuations Meetings for useful comments. Financial support from the National Science Foundation is gratefully acknowledged. All errors are mine.
PY - 1998/9
Y1 - 1998/9
N2 - In this paper I consider a dynamically complete market model without intrinsic uncertainty. The only uncertainty is modelled by sunspots. Agents' beliefs are hetero- geneous, but eventually become homogeneous in the sense that agents' beliefs are identical in the limit. I show that if some states of nature occur rarely, then arbitrarily large market crashes may occur infinitely often. This result contrasts with Cass and Shell'sJ. Polit. Econ.91(1983), 193-227) results which show that when beliefs are homogeneous, in complete markets without intrinsic uncertainty, sunspots do not matter.Journal of Economic Literatureclassification number: D83
AB - In this paper I consider a dynamically complete market model without intrinsic uncertainty. The only uncertainty is modelled by sunspots. Agents' beliefs are hetero- geneous, but eventually become homogeneous in the sense that agents' beliefs are identical in the limit. I show that if some states of nature occur rarely, then arbitrarily large market crashes may occur infinitely often. This result contrasts with Cass and Shell'sJ. Polit. Econ.91(1983), 193-227) results which show that when beliefs are homogeneous, in complete markets without intrinsic uncertainty, sunspots do not matter.Journal of Economic Literatureclassification number: D83
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U2 - 10.1006/jeth.1998.2436
DO - 10.1006/jeth.1998.2436
M3 - Article
AN - SCOPUS:0037722339
VL - 82
SP - 1
EP - 18
JO - Journal of Economic Theory
JF - Journal of Economic Theory
SN - 0022-0531
IS - 1
ER -