TY - JOUR
T1 - Learning, Rare Events, and Recurrent Market Crashes in Frictionless Economies without Intrinsic Uncertainty
AU - Sandroni, Alvaro
PY - 1998/9/1
Y1 - 1998/9/1
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 -