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| Type: | Working Paper |
| Title: | Efficient Complete Markets Are the Rule Rather thanthe Exception |
| Author: | Faro, José Heleno Chateauneuf, Alain Araujo, Aloisio |
| Publication Date: | 2015 |
| Abstract: | When the nancial market has frictions there must be multiple or ambiguous risk-neutral probabilities. By providing a complete characterization of pricing rules of nancial markets with a nite number of assets over a given state space, we are able to describe how we can recover an underlying nancial market structure related to any nitely generated pricing rule. We provide a novel characterization for the set of efcient securities (that is, chosen by at least one rational expected utility agent) revealed by any valuation rule, which allows us to propose two meaningful notions of completeness: while a unique underlying complete market means that it is possible to replicate any position by trading efcient securities, the case of an underlying efcient complete market means that all nancial positions are replicable and efcient. Our main result shows that efcient complete markets (with bid-ask spreads) is the prevalent case that emerges from the universe of all nitely generated pricing rules. Furthermore, any failure of efcient completeness requires valuation rules associate to sets of probabilities allowing disagreement about null events. In particular, the assumption of a Savagian state space almost precludes incompleteness. |
| Keywords (english terms): | efficiency pricing rules risk-neutral probabilities asset pricing bid-ask spreads complete markets incompleteness |
| Language: | Português |
| CNPq Area: | Ciências Sociais Aplicadas |
| URI: | https://www.insper.edu.br/working-papers/efficient-complete-markets-are-the-rule-rather-than-the-exception/ |
| Copyright: | O INSPER E ESTE REPOSITÓRIO NÃO DETÊM OS DIREITOS DE USO E REPRODUÇÃO DOS CONTEÚDOS AQUI REGISTRADOS. É RESPONSABILIDADE DOS USUÁRIOS INDIVIDUAIS VERIFICAR OS USOS PERMITIDOS NA FONTE ORIGINAL, RESPEITANDO-SE OS DIREITOS DE AUTOR OU EDITOR |
| Notes: | Texto completo |
| Appears in Collections: | Coleção de Working Papers |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| R_WP_2015_Efficient Complete Markets Are the Rule Rather thanthe Exception-wpe352_TC.pdf | R_WP_2015_Efficient Complete Markets Are the Rule Rather thanthe Exception-wpe352_TC | 443.52 kB | Adobe PDF | View/Open |
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